turn was being tailed by the Isuzu truck driven by
00 as attorneys fees plus cost
FIRST DIVISION
[G.R. No. 160039. June 29, 2004]
RAYMUNDO ODANI SECOSA, EL
BUENASENSO SY and DASSAD
WAREHOUSING and PORT
SERVICES,
INCORPORATED, petitioners, vs.
HEIRS OF ERWIN SUAREZ
FRANCISCO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review under Rule 45
of the Rules of Court seeking the reversal of the
decision[1] of the Court of Appeals
dated February 27, 2003 in CA-G.R. CV No.
61868, which affirmed in toto the June 19,
1998 decision[2] of Branch 20 of the Regional
Trial Court of Manila in Civil Case No. 96-79554.
The facts are as follows:
On June 27, 1996, at around 4:00 p.m.,
Erwin Suarez Francisco, an eighteen year old
third year physical therapy student of
the Manila Central University, was riding a
motorcycle along Radial 10 Avenue, near the
Veteran Shipyard Gate in the City of Manila. At
the same time, petitioner, Raymundo Odani
Secosa, was driving an Isuzu cargo truck with
plate number PCU-253 on the same road. The
truck was owned by petitioner, Dassad
Warehousing and Port Services, Inc.
Traveling behind the motorcycle driven by
Francisco was a sand and gravel truck, which in
6. The sum of P50,000.
Secosa. The three vehicles were traversing the
southbound lane at a fairly high speed. When
Secosa overtook the sand and gravel truck, he
bumped the motorcycle causing Francisco to
fall. The rear wheels of the Isuzu truck then ran
over Francisco, which resulted in his
instantaneous death. Fearing for his life,
petitioner Secosa left his truck and fled the scene
of the collision.[3]
Respondents, the parents of Erwin
Francisco, thus filed an action for damages
against Raymond Odani Secosa, Dassad
Warehousing and Port Services, Inc. and
Dassads president, El Buenasucenso Sy. The
complaint was docketed as Civil Case No. 96-
79554 of the RTC of Manila, Branch 20.
On June 19, 1998, after a full-blown trial,
the court a quo rendered a decision in favor of
herein respondents, the dispositive portion of
which states:
WHEREFORE, premised on the foregoing,
judgment is hereby rendered in favor of the plaintiffs
ordering the defendants to pay plaintiffs jointly and
severally:
1. The sum of P55,000.00 as actual and
compensatory damages;
2. The sum of P20,000.00 for the repair of the
motorcycle;
3. The sum of P100,000.00 for the loss of earning
capacity;
4. The sum of P500,000.00 as moral damages;
5. The sum of P50,000.00 as exemplary damages;
of suit.
SO ORDERED.
Petitioners appealed the decision to the
Court of Appeals, which affirmed the appealed
decision in toto.[4]
Hence the present petition, based on the
following arguments:
I.
THE COURT OF APPEALS SERIOUSLY ERRED
WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT THAT PETITIONER DASSAD
DID NOT EXERCISE THE DILIGENCE OF A
GOOD FATHER OF A FAMILY IN THE
SELECTION AND SUPERVISION OF ITS
EMPLOYEES WHICH IS NOT IN
ACCORDANCE WITH ARTICLE 2180 OF THE
NEW CIVIL CODE AND RELATED
JURISPRUDENCE ON THE MATTER.
II.
THE COURT OF APPEALS SERIOUSLY ERRED
WHEN IT AFFIRMED THE DECISION OF THE
TRIAL COURT IN HOLDING PETITIONER EL
BUENASENSO SY SOLIDARILY LIABLE WITH
PETITIONERS DASSAD AND SECOSA IN
VIOLATION OF THE CORPORATION LAW
AND RELATED JURISPRUDENCE ON THE
MATTER.
III.
THE JUDGMENT OF THE TRIAL COURT AS
AFFIRMED BY THE COURT OF APPEALS
AWARDING P500,000.00 AS MORAL
DAMAGES IS MANIFESTLY ABSURD,
MISTAKEN AND UNJUST.[5]
 The petition is partly impressed with merit.
On the issue of whether petitioner Dassad
Warehousing and Port Services, Inc. exercised
the diligence of a good father of a family in the
selection and supervision of its employees, we
find the assailed decision to be in full accord with
pertinent provisions of law and established
jurisprudence.
Article 2176 of the Civil Code provides:
Whoever by act or omission causes damage to
another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between
the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
On the other hand, Article 2180, in pertinent part,
states:
The obligation imposed by article 2176 is
demandable not only for ones own acts or omissions,
but also for those of persons for whom one is
responsible x x x.
Employers shall be liable for the damages caused by
their employees and household helpers acting within
the scope of their assigned tasks, even though the
former are not engaged in any business or industry x
x x.
The responsibility treated of in this article shall cease
when the persons herein mentioned prove that they
observed all the diligence of a good father of a
family to prevent damage.
Based on the foregoing provisions, when
an injury is caused by the negligence of an
employee, there instantly arises a presumption
that there was negligence on the part of the
employer either in the selection of his employee
or in the supervision over him after such
selection. The presumption, however, may be
rebutted by a clear showing on the part of the
employer that it exercised the care and diligence
of a good father of a family in the selection and
supervision of his employee. Hence, to evade
solidary liability for quasi-delict committed by an
employee, the employer must adduce sufficient
proof that it exercised such degree of care.[6]
How does an employer prove that he
indeed exercised the diligence of a good father
of a family in the selection and supervision of his
employee? The case of Metro Manila Transit
Corporation v. Court of Appeals[7] is instructive:
In fine, the party, whether plaintiff or defendant, who
asserts the affirmative of the issue has the burden of
presenting at the trial such amount of evidence
required by law to obtain a favorable judgment[8] . . .
In making proof in its or his case, it is paramount
that the best and most complete evidence is formally
entered.[9]
Coming now to the case at bar, while there is no rule
which requires that testimonial evidence, to hold
sway, must be corroborated by documentary
evidence, inasmuch as the witnesses testimonies
dwelt on mere generalities, we cannot consider the
same as sufficiently persuasive proof that there was
observance of due diligence in the selection and
supervision of employees. Petitioners attempt to
prove its deligentissimi patris familias in the
selection and supervision of employees through oral
evidence must fail as it was unable to buttress the
same with any other evidence, object or
documentary, which might obviate the apparent
biased nature of the testimony.[10]
Our view that the evidence for petitioner MMTC
falls short of the required evidentiary quantum as
would convincingly and undoubtedly prove its
observance of the diligence of a good father of a
family has its precursor in the underlying rationale
pronounced in the earlier case of Central Taxicab
Corp. vs. Ex-Meralco Employees Transportation
Co., et al.,[11] set amidst an almost identical factual
setting, where we held that:
The failure of the defendant company to produce in
court any record or other documentary proof tending
to establish that it had exercised all the diligence of a
good father of a family in the selection and
supervision of its drivers and buses, notwithstanding
the calls therefor by both the trial court and the
opposing counsel, argues strongly against its
pretensions.
We are fully aware that there is no hard-and-fast rule
on the quantum of evidence needed to prove due
observance of all the diligence of a good father of a
family as would constitute a valid defense to the
legal presumption of negligence on the part of an
employer or master whose employee has by his
negligence, caused damage to another. x x x
(R)educing the testimony of Albert to its proper
proportion, we do not have enough trustworthy
evidence left to go by. We are of the considered
opinion, therefore, that the believable evidence on
the degree of care and diligence that has been
exercised in the selection and supervision of Roberto
Leon y Salazar, is not legally sufficient to overcome
the presumption of negligence against the defendant
company.
The above-quoted ruling was reiterated in a
recent case again involving the Metro Manila
Transit Corporation,[12] thus:
In the selection of prospective employees, employers
are required to examine them as to their
qualifications, experience, and service records.[13] On
the other hand, with respect to the supervision of
employees, employers should formulate standard
operating procedures, monitor their implementation,
and impose disciplinary measures for breaches
thereof. To establish these factors in a trial involving
the issue of vicarious liability, employers must
submit concrete proof, including documentary
evidence.
In this case, MMTC sought to prove that it exercised
the diligence of a good father of a family with
respect to the selection of employees by presenting
mainly testimonial evidence on its hiring procedure.
According to MMTC, applicants are required to
submit professional driving licenses, certifications of
work experience, and clearances from the National
Bureau of Investigation; to undergo tests of their
driving skills, concentration, reflexes, and vision;
and, to complete training programs on traffic rules,
vehicle maintenance, and standard operating
procedures during emergency cases.
xxxxxxxxx
Although testimonies were offered that in the case of
Pedro Musa all these precautions were followed, the
records of his interview, of the results of his
examinations, and of his service were not presented.
. . [T]here is no record that Musa attended such
training programs and passed the said examinations
before he was employed. No proof was presented
that Musa did not have any record of traffic
violations. Nor were records of daily inspections,
allegedly conducted by supervisors, ever presented. .
. The failure of MMTC to present such documentary
proof puts in doubt the credibility of its witnesses.
Jurisprudentially, therefore, the employer
must not merely present testimonial evidence to
prove that he observed the diligence of a good
father of a family in the selection and supervision
of his employee, but he must also support such
testimonial evidence with concrete or
documentary evidence. The reason for this is to
obviate the biased nature of the employers
testimony or that of his witnesses.[14]
Applying the foregoing doctrines to the
present case, we hold that petitioner Dassad
Warehousing and Port Services, Inc. failed to
conclusively prove that it had exercised the
requisite diligence of a good father of a family in
the selection and supervision of its employees.
Edilberto Duerme, the lone witness
presented by Dassad Warehousing and Port
Services, Inc. to support its position that it had
exercised the diligence of a good father of a
family in the selection and supervision of its
employees, testified that he was the one who
recommended petitioner Raymundo Secosa as a
driver to Dassad Warehousing and Port
Services, Inc.; that it was his duty to scrutinize
the capabilities of drivers; and that he believed
petitioner to be physically and mentally fit for he
had undergone rigid training and attended the
PPA safety seminar.[15]
Petitioner Dassad Warehousing and Port
Services, Inc. failed to support the testimony of
its lone witness with documentary evidence
which would have strengthened its claim of due
diligence in the selection and supervision of its
employees. Such an omission is fatal to its
position, on account of which, Dassad can be
rightfully held solidarily liable with its co-petitioner
Raymundo Secosa for the damages suffered by
the heirs of Erwin Francisco.
However, we find that petitioner El
Buenasenso Sy cannot be held solidarily liable
with his co-petitioners. While it may be true that
Sy is the president of petitioner Dassad
Warehousing and Port Services, Inc., such fact
is not by itself sufficient to hold him solidarily
liable for the liabilities adjudged against his co-
petitioners.
It is a settled precept in this jurisdiction that
a corporation is invested by law with a
personality separate from that of its stockholders
or members.[16] It has a personality separate and
distinct from those of the persons composing it
as well as from that of any other entity to which it
may be related. Mere ownership by a single
stockholder or by another corporation of all or
nearly all of the capital stock of a corporation is
not in itself sufficient ground for disregarding the
separate corporate personality.[17] A
corporations authority to act and its liability for its
actions are separate and apart from the
individuals who own it.[18]
The so-called veil of corporation fiction
treats as separate and distinct the affairs of a
corporation and its officers and stockholders. As
a general rule, a corporation will be looked upon
as a legal entity, unless and until sufficient
reason to the contrary appears. When the notion
of legal entity is used to defeat public
convenience, justify wrong, protect fraud, or
defend crime, the law will regard the corporation
as an association of persons.[19] Also, the
corporate entity may be disregarded in the
interest of justice in such cases as fraud that may
work inequities among members of the
corporation internally, involving no rights of the
public or third persons. In both instances, there
must have been fraud and proof of it. For the
separate juridical personality of a corporation to
be disregarded, the wrongdoing must be clearly
and convincingly established.[20] It cannot be
presumed.[21]
The records of this case are bereft of any
evidence tending to show the presence of any
grounds enumerated above that will justify the
piercing of the veil of corporate fiction such as to
hold the president of Dassad Warehousing and
Port Services, Inc. solidarily liable with it.
The Isuzu cargo truck which ran over Erwin
Francisco was registered in the name of Dassad
Warehousing and Port Services, Inc., and not in
the name of El Buenasenso Sy.Raymundo
Secosa is an employee of Dassad Warehousing
and Port Services, Inc. and not of El Buenasenso
Sy. All these things, when taken collectively,
point toward El Buenasenso Sys exclusion from
liability for damages arising from the death of
Erwin Francisco.
 Having both found Raymundo Secosa and
Dassad Warehousing and Port Services, Inc.
liable for negligence for the death of Erwin
Francisco on June 27, 1996, we now consider
the question of moral damages which his
parents, herein respondents, are entitled to
recover. Petitioners assail the award of moral
damages of P500,000.00 for being manifestly
absurd, mistaken and unjust. We are not
persuaded.
Under Article 2206, the spouse, legitimate
and illegitimate descendants and ascendants of
the deceased may demand moral damages for
mental anguish for the death of the deceased.
The reason for the grant of moral damages has
been explained in this wise:
. . . the award of moral damages is aimed at a
restoration, within the limits possible, of the spiritual
status quo ante; and therefore, it must be
proportionate to the suffering inflicted. The intensity
of the pain experienced by the relatives of the victim
is proportionate to the intensity of affection for him
and bears no relation whatsoever with the wealth or
means of the offender.[22]
In the instant case, the spouses Francisco
presented evidence of the searing pain that they
felt when the premature loss of their son was
relayed to them. That pain was highly evident in
the testimony of the father who was forever
deprived of a son, a son whose untimely death
came at that point when the latter was nearing
the culmination of every parents wish to educate
their children. The death of Francis has indeed
left a void in the lives of the respondents. Antonio
Francisco testified on the effect of the death of
his son, Francis, in this manner:
Q: (Atty. Balanag): What did you do
when you learned that your son
was killed on June 27, 1996?
A: (ANTONIO FRANCISCO): I boxed 2002 decision in Metro Manila Transit
the door and pushed the image Corporation v. Court of Appeals, et al.,[25] we
of St. Nio telling why this affirmed the award of moral damages of
happened to us. P500,000.00 to the heirs of the victim, a mother,
who died from injuries she sustained when a bus
Q: Mr. Witness, how did you feel driven by an employee of the petitioner hit her. In
when you learned of the the case at bar, we likewise affirm the portion of
untimely death of your son, the assailed decision awarding the moral
Erwin Suares (sic)? damages.
A: Masakit po ang mawalan ng anak. Since the petitioners did not question the
Its really hard for me, the other damages adjudged against them by
thought that my son is dead. the court a quo, we affirm the award of these
xxxxxxxxx damages to the respondents.
Q: How did your family react to the WHEREFORE, the petition
death of Erwin Suarez is DENIED. The assailed decision is AFFIRMED
Francisco? with the MODIFICATION that petitioner El
Buenasenso Sy is ABSOLVED from any liability
adjudged against his co-petitioners in this case.
A: All of my family and relatives were
felt (sic) sorrow because they
Costs against petitioners.
knew that my son is (sic) good.
Q: We know that it is impossible to put SO ORDERED.
money terms(s) [on] the life of Davide, Jr., C.J., (Chairman), Panganiban,
[a] human, but since you are Carpio, and Azcuna, JJ., concur.
now in court and if you were to
ask this court how much would
you and your family
compensate? (sic)
A: Even if they pay me millions, they
cannot remove the anguish of
my son (sic).[23]
Moral damages are emphatically not
intended to enrich a plaintiff at the expense of the
defendant. They are awarded to allow the former
to obtain means, diversion or amusements that
will serve to alleviate the moral suffering he has
undergone due to the defendants culpable action
and must, perforce, be proportional to the
suffering inflicted.[24] We have previously held as
proper an award of P500,000.00 as moral
damages to the heirs of a deceased family
member who died in a vehicular accident. In our
 Republic of the Philippines B. Aznar III; Jose L. Aznar (deceased), represented by
Supreme Court his heirs; Ramon A. Barcenilla (deceased),
Manila - versus -
represented by his heirs; Rosario T. Barcenilla; Jose
B. Enad (deceased), represented by his heirs; and
FIRST DIVISION Ricardo Gabuya (deceased), represented by his
heirs (Aznar, et al.), the amount of their lien based on
PHILIPPINE the Minutes of the Special Meeting of the Board of
PHILIPPINE G.R. No. 171805 NATIONAL BANK, Directors[4] (Minutes) of the defunct Rural Insurance
NATIONAL BANK, Respondent.
and Surety Company, Inc. (RISCO) duly annotated on
Petitioner, x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - - - -x the titles of three parcels of land, plus legal interests
from the time of PNBs acquisition of the subject
- versus - properties until the finality of the judgment but
dismissing all other claims of Aznar, et al. On the
other hand, the March 6, 2006 Resolution of the Court
MERELO B. of Appeals denied the Motion for Reconsideration
AZNAR; MATIAS DECISION
subsequently filed by each party.
B. AZNAR III; JOSE
L. AZNAR
(deceased), LEONARDO-DE CASTRO, J.: The facts of this case, as stated in the
represented by his
heirs; RAMON A. Decision dated September 29, 2005 of the Court of
BARCENILLA; Before the Court are two petitions for
ROSARIO T. review on certiorari under Rule 45 of the Rules of Appeals, are as follows:
BARCENILLA; G.R. No. 172021
Court both seeking to annul and set aside the
JOSE B. ENAD
(deceased), Present: Decision[1] dated September 29, 2005 as well as the In 1958, RISCO ceased
represented by his Resolution[2] dated March 6, 2006 of the Court of operation due to business
heirs; and CORONA, C.J., Appeals in CA-G.R. CV No. 75744, entitled Merelo reverses. In plaintiffs desire to
RICARDO Chairperson, rehabilitate RISCO, they
B. Aznar, Matias B. Aznar III, Jose L. Aznar
GABUYA VELASCO, JR., contributed a total amount
(deceased) represented by his heirs, Ramon A. of P212,720.00 which was used
(deceased), LEONARDO-DE
Barcenilla (deceased) represented by his heirs, in the purchase of the three (3)
represented by his CASTRO,
heirs, PERALTA,* and Rosario T. Barcenilla, Jose B. Enad (deceased) parcels of land described as
Respondents. PEREZ, JJ. represented by his heirs, and Ricardo Gabuya follows:
x- - - - - - - - - - - - - - - (deceased) represented by his heirs v. Philippine
----------x Promulgated: National Bank, Jose Garrido and Register of Deeds of A
MERELO B. parcel of land
Cebu City. The September 29, 2005 Decision of the (Lot No.
AZNAR and May 30, 2011 Court of Appeals set aside the Decision[3] dated
MATIAS B. AZNAR 3597 of the
November 18, 1998 of the Regional Trial Court Talisay-
III,
Petitioners, (RTC) of Cebu City, Branch 17, in Civil Case No. Minglanilla
CEB-21511. Furthermore, it ordered the Philippine Estate,
National Bank (PNB) to pay Merelo B. Aznar; Matias G.L.R.O.
Record No. y, Province o TY[-
3732) f Cebu, ]FIVE THO
situated in Island USAND SIX
the Municipa of Cebu. xxx HUNDRED
lity of Talisa containing an FIFTY[-
y, Province o area of ]THREE
f Cebu, Islan THREE (55,653)
d of Cebu. HUNDRED SQUARE
xxx TWENTY[- METERS,
containing an ]NINE more or less.
area of THOUSAN covered by
SEVENTY[- D FIVE Transfer
]EIGHT HUNDRED Certificate of
THOUSAN FORTY[- Title No.
D ONE ]SEVEN 24576 in the
HUNDRED SQUARE name of
EIGHTY[- METERS Rural
]FIVE (329,547), Insurance &
SQUARE more or less. Surety Co.,
METERS xxx covered Inc.
(78,185) by Transfer
more or less. Certificate of After the purchase of
x x x covered Title No. the above lots, titles were issued
by Transfer 8922 in the in the name of RISCO. The
Certificate of name of amount contributed by plaintiffs
Title No. Rural constituted as liens and
8921 in the Insurance & encumbrances on the
name of Surety Co., aforementioned properties as
Rural Inc. and annotated in the titles of said lots.
Insurance & Such annotation was made
Surety Co., A pursuant to the Minutes of the
Inc.; parcel of land Special Meeting of the Board of
(Lot 1323 of Directors of RISCO (hereinafter
A the referred to as the Minutes) on
parcel of land subdivision March 14, 1961, pertinent portion
(Lot 7380 of plan Psd-No. of which states:
the Talisay 5988),
Minglanilla situated in xx
Estate, the District xx
G.L.R.O. of Lahug,
Record No. City of Cebu, 3.
3732), Island The
situated in of Cebu. xxx President
the Municipa containing a then
lity of Talisa n area ofFIF explained
that in a mentioned Writ of Execution both dated
special shall August 3, 1962 in favor of herein
meeting of constitute as defendant PNB, to wit:
the their lien or
stockholders interest on On TCT No.
previously the property 8921
called for the described for Lot 3597
purpose of above, if and :
putting up when said
certain property are Entry No.
amount titled in the 7416-V-4-
of P212,720. name of D.B. Notice
00 for the RURAL of
rehabilitation INSURANC Attachment
of the E & By the
Company, SURETY Provincial
the following CO., INC., Sheriff of
stockholders subject to Cebu, Civil
contributed registration Case No.
the amounts as their 47725, Court
indicated adverse of First
opposite claim in Instance of
their names: pursuance of Manila,
the entitled
CONTRIBU Provisions of Philippine
TED Land National
SURPLUS Registration Bank,
Act, (Act No. Plaintiff,
MERELO B. AZNAR 496, P50,000.00
as versus
MATIAS B. AZNAR amended) 50,000.00 Iluminada
JOSE L. AZNAR until 27,720.00
such Gonzales, et
RAMON A. BARCENILLA time 25,000.00
their al.,
ROSARIO T. BARCENILLA respective
25,000.00 Defendants,
JOSE B. ENAD contributions
17,500.00 attaching all
RICARDO GABUYA are refunded
17,500.00 rights,
to 212,720.00
them interest and
completely. participation
xx of the
xx xx defendant
xx Iluminada
An Gonzales and
d that the Thereafter, various Rural
respective subsequent annotations were Insurance &
contributions made on the same titles, including Surety Co.,
above- the Notice of Attachment and Inc. of the
two parcels plus interest attaching all
of land etc., in rights,
covered by connection interests and
T.C.T. Nos. with Civil participation
8921, Case No. of the
Attachment 47725, File defendants,
No. 330 and No. T-8021. to the parcels
185. of land
Date of covered by
Date of Instrument T.C.T. Nos.
Instrument July 21, 8921 & 8922
August 3, 1962. Attachment
1962. Date of No. 186, File
Date of Inscription No. T-8921.
Inscription August 3,
August 3, 1962, 3:00 Date of the
1962, 3:00 P.M. Instrument
P.M. August 16,
Entry No. 1962.
Entry No. 7512-V-4- Date of
7417-V-4- D.B. Notice Inscription
D.B. Writ of of August 16,
Execution Attachment 1962, 2:50
By the Court By the P.M.
of First Provincial
Instance of Sheriff Entry No.
Manila, of Cebu, 7513-V-4-
commanding Civil Case D.B. Writ of
the Nos. IV- Execution
Provincial 74065, By the
Sheriff of 73929, Municipal
Cebu, of the 74129, Court of the
lands and 72818, in the City of
buildings of Municipal Manila,
the Court of the commanding
defendants, City the
to make the of Manila, Provincial
sum of entitled Jose Sheriff of
Seventy[- Garrido, Cebu, of the
]One Plaintiff, lands and
Thousand versus Rural buildings of
Three Insurance & the
Hundred Surety Co., defendants,
Pesos Inc., et als., to make the
(P71,300.00) Defendants, sum of Three
Thousand for Lot 7380 Iluminada
Pesos : Gonzales and
(P3,000.00), (Same as the Rural
with interest annotations Insurance &
at 12% per on TCT Surety Co.,
annum from 8921) Inc. of the
July 20, parcel of land
1959, in On TCT No. herein
connection 24576 described.
with Civil for Lot 1328 Attachment
Case Nos. (Corrected No. 330 &
IV-74065, to Lot 1323-c 185.
73929, per court
74613 order): Date of
annotated Instrument
above. Entry No. August 3,
1660-V-7- 1962.
File No. T- D.B. Notice Date of
8921 of Inscription
Date of the Attachment August 3,
Instrument by the 1962, 3:00
August 11, Provincial P.M.
1962. Sheriff of
Da Cebu, Civil Entry No.
te Case No. 1661-V-7-
of 47725, Court D.B. Writ of
the of First Execution by
Ins Instance of the Court of
cri Manila, First Instance
pti entitled of Manila
on Philippine commanding
Au National the
gu Bank, Provincial
st Plaintiff, Sheriff of
16, versus, Cebu, of the
19 Iluminada lands and
62, Gonzales, et buildings of
2:5 al., the
0P Defendants, defendants to
.M attaching all make the
. rights, sum of
interest, and Seventy[-
On TCT No. participation ]One
8922 of the Thousand
defendants Three
Hundred Surety Co., sum of Three
Pesos Inc., et als., Thousand
(P71,300.00) Defendants, Pesos
, plus attaching all (P3,000.00),
interest, etc., rights, with interest
in connection interest and at 12% per
with Civil participation annum from
Case No. of the July 20,
47725. defendants, 1959, in
File No. T- to the parcel connection
8921. of land with Civil
Date of the herein Case Nos.
Instrument described. IV-74065,
July 21, Attachment 73929,
1962. No. 186. 74129,
Date of the File No. T- 72613 &
Inscription 8921. 72871
August 3, Date of the annotated
1962 3:00 Instrument above.
P.M. August 16, File No. T-
1962. 8921.
Entry No. Date of the Date of the
1861-V-7- Instription Instrument
D.B. - Notice August 16, August 11,
of 1962 2:50 1962.
Attachment P.M. Date of the
By the Inscription
Provincial Entry No. August 16,
Sheriff of 1862-V-7- 1962 at 2:50
Cebu, Civil D.B. Writ of P.M.
Case Nos. Execution by
IV-74065, the As a result, a
73929, Municipal Certificate of Sale was issued in
74129, Court of favor of Philippine National
72613 & Manila, Bank, being the lone and highest
72871, in the commanding bidder of the three (3) parcels of
Municipal the land known as Lot Nos. 3597 and
Court of the Provincial 7380, covered by T.C.T. Nos.
City of Sheriff of 8921 and 8922, respectively, both
Manila, Cebu, of the situated at Talisay, Cebu, and Lot
entitled Jose lands and No. 1328-C covered by T.C.T.
Garrido, buildings of No. 24576 situated at Cebu City,
Plaintiff, the for the amount of Thirty-One
versus Rural Defendants, Thousand Four Hundred Thirty
Insurance & to make the Pesos (P31,430.00). Thereafter, a
Final Deed of Sale dated May 27,
1991 in favor of the Philippine
National Bank was also issued
and Transfer Certificate of Title
No. 24576 for Lot 1328-C
(corrected to 1323-C) was
cancelled and a new certificate of
title, TCT 119848 was issued in
the name of PNB on August 26,
1991.
This prompted
plaintiffs-appellees to file the
instant complaint seeking the
quieting of their supposed title to
the subject properties, declaratory
relief, cancellation of TCT and
reconveyance with temporary
restraining order and preliminary
injunction. Plaintiffs alleged that
the subsequent annotations on the
titles are subject to the prior
annotation of their liens and
encumbrances. Plaintiffs further
contended that the subsequent
writs and processes annotated on
the titles are all null and void for
want of valid service upon
RISCO and on them, as
stockholders. They argued that
the Final Deed of Sale and TCT
No. 119848 are null and void as
these were issued only after 28
years and that any right which
PNB may have over the
properties had long become stale.
Defendant PNB on the
other hand countered that
plaintiffs have no right of action
for quieting of title since the order
of the court directing the issuance
of titles to PNB had already
become final and executory and
their validity cannot be attacked
except in a direct proceeding for
their annulment. Defendant
further asserted that plaintiffs, as
mere stockholders of RISCO do
not have any legal or equitable
right over the properties of the
corporation. PNB posited that
even if plaintiffs monetary lien
had not expired, their only
recourse was to require the
reimbursement or refund of their
contribution.[5]
Aznar, et al., filed a Manifestation and Motion for
Judgment on the Pleadings[6] on October 5,
1998. Thus, the trial court rendered the November 18,
1998 Decision, which ruled against PNB on the basis
that there was an express trust created over the subject
properties whereby RISCO was the trustee and the
stockholders, Aznar, et al., were the beneficiaries or
the cestui que trust. The dispositive portion of the said
ruling reads:
WHEREFORE,
judgment is hereby rendered as
follows:
a) Declaring the Minutes of the
Special Meeting of the Board of
Directors of RISCO approved on
March 14, 1961 (Annex E,
Complaint) annotated on the titles
to subject properties on May 15,
1962 as an express trust whereby
RISCO was a mere trustee and
the above-mentioned
stockholders as beneficiaries
being the true and lawful owners
of Lots 3597, 7380 and 1323;
b) Declaring all the subsequent
annotations of court writs and
processes, to wit: Entry No.
7416-V-4-D.B., 7417-V-4-D.B.,
7512-V-4-D.B., and 7513-V-4-
D.B. in TCT No. 8921 for Lot
3597 and TCT No. 8922 for Lot
7380; Entry No. 1660-V-7-D.B.,
Entry No. 1661-V-7-D.B., Entry
No. 1861-V-7-D.B., Entry No.
1862-V-7-D.B., Entry No. 4329-
V-7-D.B., Entry No. 3761-V-7-
D.B. and Entry No. 26522 v. 34,
D.B. on TCT No. 24576 for Lot
1323-C, and all other subsequent
annotations thereon in favor of
third persons, as null and void;
c) Directing the Register of Deeds
of the Province of Cebu and/or
the Register of Deeds of Cebu
City, as the case may be, to cancel
all these annotations mentioned
in paragraph b) above the titles;
d) Directing the Register of Deeds
of the Province of Cebu to cancel
and/or annul TCTs Nos. 8921 and
8922 in the name of RISCO, and
to issue another titles in the
names of the plaintiffs; and
e) Directing Philippine National
Bank to reconvey TCT No.
119848 in favor of the
plaintiffs.[7]
 MEETING OF THE BOARD OF
PNB appealed the adverse ruling to the DIRECTORS OF RISCO
CONSTITUTED AS AN
Court of Appeals which, in its September 29, 2005 Both parties moved for reconsideration but EFFECTIVE ADVERSE
Decision, set aside the judgment of the trial CLAIM.
these were denied by the Court of Appeals. Hence,
court. Although the Court of Appeals agreed with the each party filed with this Court their respective III
trial court that a judgment on the pleadings was petitions for review on certiorari under Rule 45 of the THE COURT OF APPEALS
ERRED IN NOT
proper, the appellate court opined that the monetary Rules of Court, which were consolidated in a CONSIDERING THE
contributions made by Aznar, et al., to RISCO can Resolution[9] dated October 2, 2006. DISMISSAL OF THE
COMPLAINT ON GROUNDS
only be characterized as a loan secured by a lien on OF RES JUDICATA AND
LACK OF CAUSE OF ACTION
the subject lots, rather than an express trust. Thus, it In PNBs petition, docketed as G.R. No. ALLEGED BY PETITIONER
directed PNB to pay Aznar, et al., the amount of IN ITS ANSWER.[10]
171805, the following assignment of errors were
their contributions plus legal interest from the time of raised:
On the other hand, Aznar, et al.s petition,
acquisition of the property until finality of
docketed as G.R. No. 172021, raised the following
I issue:
judgment. The dispositive portion of the decision

reads: THE COURT OF APPEALS

THE COURT OF APPEALS
ERRED IN AFFIRMING THE
ERRED IN CONCLUDING
FINDINGS OF THE TRIAL
THAT THE CONTRIBUTIONS
WHEREFORE, COURT THAT A JUDGMENT
MADE BY THE
premises considered, the assailed ON THE PLEADINGS WAS
STOCKHOLDERS OF RISCO
Judgment is hereby SET ASIDE. WARRANTED DESPITE THE
WERE MERELY A LOAN
EXISTENCE OF GENUINE
SECURED BY THEIR LIEN
A new judgment is ISSUES OF FACTS ALLEGED
OVER THE PROPERTIES,
rendered ordering Philippine IN PETITIONER PNBS
SUBJECT TO
National Bank to pay plaintiffs- ANSWER.
REIMBURSEMENT OR
appellees the amount of their lien
REFUND, RATHER THAN AN
based on the Minutes of the II
EXPRESS TRUST.[11]
Special Meeting of the Board of
Directors duly annotated on the THE HONORABLE COURT OF
titles, plus legal interests from the APPEALS ERRED IN
time of appellants acquisition of HOLDING THAT THE RIGHT Anent the first issue raised in G.R. No.
the subject properties until the OF RESPONDENTS TO
finality of this judgment. REFUND OR REPAYMENT OF 171805, PNB argues that a judgment on the pleadings
THEIR CONTRIBUTIONS
All other claims of the HAD NOT PRESCRIBED was not proper because its Answer,[12] which it filed
plaintiffs-appellees are hereby AND/OR THAT THE
during the trial court proceedings of this case,
DISMISSED.[8] MINUTES OF THE SPECIAL
 in the titles
tendered genuine issues of fact since it did not only certain special defenses which, if proven, would have adverted to
above,
deny material allegations in Aznar, et al.s the effect of nullifying plaintiffs main cause of action,
pursuant to
Complaint[13] but also set up special and affirmative judgment on the pleadings cannot be rendered.[15] the Minutes
of the Special
defenses. Furthermore, PNB maintains that, by virtue Meeting of
the Board of
of the trial courts judgment on the pleadings, it was In the case at bar, the Court of Appeals Directors of
RISCO
denied its right to present evidence and, therefore, it justified the trial courts resort to a judgment on the
approved on
was denied due process. pleadings in the following manner: March 14,
Perusal of the 1961, a copy
complaint, particularly, of which is
Paragraph 7 thereof reveals: hereto
The contention is meritorious. attached as
7.
That in their Annex E.
desire to
The legal basis for rendering a judgment on rehabilitate On the other hand, defendant in
RISCO, the its Answer, admitted the
the pleadings can be found in Section 1, Rule 34 of above- aforequoted allegation with the
named qualification that the amount put
the Rules of Court which states that [w]here an answer up by the stockholders was used
stockholders
fails to tender an issue, or otherwise admits the contributed a as part payment for the
total amount properties. Defendant further
material allegations of the adverse partys pleading, of averred that plaintiffs liens and
PhP212,720. encumbrances annotated on the
the court may, on motion of that party, direct 00 which was titles issued to RISCO constituted
used in the as loan from the stockholders to
judgment on such pleading. x x x. pay part of the purchase price of
purchase of
the above- the properties and was a personal
described obligation of RISCO and was
Judgment on the pleadings is, therefore, parcels of thus not a claim adverse to the
land, which ownership rights of the
based exclusively upon the allegations appearing in amount corporation. With these
constituted averments, We do not find error
the pleadings of the parties and the annexes, if any,
liens and on the part of the trial court in
without consideration of any encumbrance rendering a judgment on the
s on subject pleadings. For one, the
evidence aliunde.[14] However, when it appears that properties in qualification made by defendant
favor of the in its answer is not sufficient to
not all the material allegations of the complaint were above- controvert the allegations raised
named in the complaint. As to
admitted in the answer for some of them were either
stockholders defendants contention that the
denied or disputed, and the defendant has set up as annotated money contributed by plaintiffs
 was in fact a loan from the No. 8921 and TCT No.
stockholders, reference can be 8922 on May 15, 1962;
made to the Minutes of the 12. That these writs and
Special Meeting of the Board of processes annotated on
Directors, from which plaintiffs- the titles are all null and
appellees anchored their void for total want of
complaint, in order to ascertain valid service upon
the true nature of their claim over RISCO and the above-
the properties. Thus, the issues named stockholders
raised by the parties can be considering that as early
resolved on the basis of their as sometime in 1958,
respective pleadings and the RISCO ceased
annexes attached thereto and do operations as earlier
not require further presentation of stated, and as early as
evidence aliunde.[16] May 15, 1962, the liens
and encumbrances of
the above-named
stockholders were
However, a careful reading of Aznar, et al.s annotated in the titles of
Complaint and of PNBs Answer would reveal that subject properties;
13. That more
both parties raised several claims and defenses, particularly, the Final
Deed of Sale (Annex G)
respectively, other than what was cited by the Court and TCT No. 119848
are null and void as
of Appeals, which requires the presentation of
these were issued only
evidence for resolution, to wit: after 28 years and 5
Complaint (Aznar, et Answer (PNB) months (in the case of
al.) the Final Deed of Sale)
11. That these 10) Par. 11 is denied as and 28 years, 6 months
and 29 days (in the case
subsequent annotations the loan from the
of TCT 119848) from
on the titles of the stockholders to pay
the invalid auction sale
properties in question part of the purchase
are subject to the prior price of the properties on December 27, 1962,
annotation of liens and was a personal hence, any right, if any,
which PNB had over
encumbrances of the obligation of RISCO
subject properties had
above-named and was thus not a
long become stale;
stockholders per Entry claim adverse to the
No. 458-V-7-D.B. ownership rights of the 14. That plaintiffs
inscribed on TCT No. corporation; continue to have
24576 on May 15, possession of subject
1962 and per Entry No. properties and of their
6966-V-4-D.B. on TCT corresponding titles, but
they never received any
process concerning the creditors of RISCO
petition filed by PNB to like PNB;
11) Par. 12 is denied as have TCT 24576 over
in fact notice to RISCO Lot 1323-C surrendered
had been sent to its last and/or cancelled;
known address at Plaza 15. That there is a cloud 14) Par. 15 is denied as
Goite, Manila; created on the the court orders
aforementioned titles of directing the issuance
RISCO by reason of the of titles to PNB in lieu
annotate writs, of TCT 24576 and
processes and TCT 8922 are valid
proceedings caused by judgments which
Jose Garrido and PNB cannot be set aside in a
which were apparently collateral proceeding
valid or effective, but like the instant case.[18]
which are in truth and in
fact invalid and
ineffective, and
prejudicial to said titles
and to the rights of the
12) Par. 13 is denied plaintiffs, which should
for no law requires the be removed and the
final deed of sale to be titles quieted.[17]
executed immediately
after the end of the
redemption period.
Moreover, another
Furthermore, apart from refuting the
court of competent
jurisdiction has already aforecited material allegations made by Aznar, et al.,
ruled that PNB was
entitled to a final deed PNB also indicated in its Answer the special and
of sale;
affirmative defenses of (a) prescription; (b) res
judicata; (c) Aznar, et al., having no right of action
for quieting of title; (d) Aznar, et al.s lien being
ineffective and not binding to PNB; and (e) Aznar, et
13) Par. 14 is denied as
al.s having no personality to file the suit.[19]
plaintiffs are not in
actual possession of
the land and if they
were, their possession From the foregoing, it is indubitably clear
was as trustee for the
that it was error for the trial court to render a judgment

on the pleadings and, in effect, resulted in a denial of
due process on the part of PNB because it was denied
its right to present evidence. A remand of this case
would ordinarily be the appropriate course of
action. However, in the interest of justice and in order
to expedite the resolution of this case which was filed
with the trial court way back in 1998, the Court finds
it proper to already resolve the present controversy in
light of the existence of legal grounds that would
dispose of the case at bar without necessity of
presentation of further evidence on the other disputed
factual claims and defenses of the parties.
A thorough and comprehensive scrutiny of
the records would reveal that this case should be
dismissed because Aznar, et al., have no title to quiet
over the subject properties and their true cause of
action is already barred by prescription.
At the outset, the Court agrees with the
Court of Appeals that the agreement contained in the
Minutes of the Special Meeting of the RISCO Board
of Directors held on March 14, 1961 was a loan by the
therein named stockholders to RISCO. We quote with
approval the following discussion from the Court of
Appeals Decision dated September 29, 2005:
the use of the word lien in the
Minutes, We find that the money
Careful perusal of the contributed by plaintiffs-
Minutes relied upon by plaintiffs- appellees was in the nature of a
appellees in their claim, showed loan, secured by their liens and
that their contributions shall interests duly annotated on the
constitute as lien or interest on the titles. The annotation of their lien
property if and when said serves only as collateral and does
properties are titled in the name not in any way vest ownership of
of RISCO, subject to registration property to
of their adverse claim under the plaintiffs.[20] (Emphases
Land Registration Act, until such supplied.)
time their respective
contributions are refunded to
them completely.
We are not persuaded by the contention
It is a cardinal rule in
the interpretation of contracts that of Aznar, et al., that the language of the subject
if the terms of a contract are clear
Minutes created an express trust.
and leave no doubt upon the
intention of the contracting
parties, the literal meaning of its
stipulation shall control. When Trust is the right to the beneficial enjoyment
the language of the contract is
explicit leaving no doubt as to the of property, the legal title to which is vested in
intention of the drafters thereof, another. It is a fiduciary relationship that obliges the
the courts may not read into it any
other intention that would trustee to deal with the property for the benefit of the
contradict its plain import.
beneficiary. Trust relations between parties may
The term lien as used
in the Minutes is defined as a either be express or implied. An express trust is
discharge on property usually for created by the intention of the trustor or of the
the payment of some debt or
obligation. A lien is a qualified parties. An implied trust comes into being by
right or a proprietary interest
which may be exercised over the operation of law.[21]
property of another. It is a right
which the law gives to have a debt
satisfied out of a particular thing. Express trusts, sometimes referred to as
It signifies a legal claim or
charge on property; whether real direct trusts, are intentionally created by the direct and
or personal, as a collateral or
security for the payment of some positive acts of the settlor or the trustor - by some
debt or obligation. Hence, from

writing, deed, or will or oral declaration. It is created
not necessarily by some written words, but by the
direct and positive acts of the parties.[22] This is in
consonance with Article 1444 of the Civil Code,
which states that [n]o particular words are required for
the creation of an express trust, it being sufficient that
a trust is clearly intended.
In other words, the creation of an express
trust must be manifested with reasonable certainty and
cannot be inferred from loose and vague declarations
or from ambiguous circumstances susceptible of other
interpretations.[23]
No such reasonable certitude in the creation
of an express trust obtains in the case at bar. In fact, a
careful scrutiny of the plain and ordinary meaning of
the terms used in the Minutes does not offer any
indication that the parties thereto intended that
Aznar, et al., become beneficiaries under an express
trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no
right to ask for the quieting of title of the properties at
issue because they have no legal and/or equitable
rights over the properties that are derived from the
previous registered owner which is RISCO, the
pertinent provision of the law is Section 2 of the
Corporation Code (Batas Pambansa Blg. 68), which
states that [a] corporation is an artificial being created
by operation of law, having the right of succession and
the powers, attributes and properties expressly
authorized by law or incident to its existence.
As a consequence thereof, a corporation has
a personality separate and distinct from those of its
stockholders and other corporations to which it may
be connected.[24]Thus, we had previously ruled
in Magsaysay-Labrador v. Court of Appeals[25] that
the interest of the stockholders over the properties of
the corporation is merely inchoate and therefore does
not entitle them to intervene in litigation involving
corporate property, to wit:
Here, the interest, if it
exists at all, of petitioners-
movants is indirect, contingent,
remote, conjectural,
consequential and collateral. At
the very least, their interest is
purely inchoate, or in sheer
expectancy of a right in the
management of the corporation
and to share in the profits thereof
and in the properties and assets
thereof on dissolution, after
payment of the corporate debts
and obligations.
While a share of stock
represents a proportionate or
aliquot interest in the property of
the corporation, it does not vest
the owner thereof with any legal
right or title to any of the
property, his interest in the
corporate property being
equitable or beneficial in nature.
Shareholders are in no legal sense
the owners of corporate property,
which is owned by the
corporation as a distinct legal
person.[26]
In the case at bar, there is no allegation,
much less any proof, that the corporate existence of
RISCO has ceased and the corporate property has
been liquidated and distributed to the
stockholders. The records only indicate that, as per
Securities and Exchange Commission (SEC)
Certification[27] dated June 18, 1997, the SEC merely
suspended RISCOs Certificate of Registration
beginning on September 5, 1988 due to its non-
submission of SEC required reports and its failure to
operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders
of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the
Minutes which, at most, is merely evidence of a loan
agreement between them and the company. There is

no indication or even a suggestion that the ownership
of said properties were transferred to them which
would require no less that the said properties be
registered under their names. For this reason, the
complaint should be dismissed since Aznar, et al.,
have no cause to seek a quieting of title over the
subject properties.
At most, what Aznar, et al., had was merely
a right to be repaid the amount loaned to
RISCO. Unfortunately, the right to seek repayment or
reimbursement of their contributions used to purchase
the subject properties is already barred by
prescription.
Section 1, Rule 9 of the Rules of Court
provides that when it appears from the pleadings or
the evidence on record that the action is already barred
by the statute of limitations, the court shall dismiss the
claim, to wit:
Defenses and
objections not pleaded either in a
motion to dismiss or in the
answer are deemed waived.
However, when it appears from
the pleadings or the evidence on
record that the court has no
jurisdiction over the subject
matter, that there is another action
pending between the same parties The pertinent Civil Code provision on
for the same cause, or that the
prescription which is applicable to the issue at hand is
action is barred by a prior
judgment or by statute of Article 1144(1), to wit:
limitations, the court shall
dismiss the claim. (Emphasis
supplied.) The following actions
must be brought within ten years
from the time the right of action
accrues:
In Feliciano v. Canoza,[28] we held:
1. Upon a
written contract;
We have ruled that trial courts
2. Upon an
have authority and discretion to
obligation created by
dismiss an action on the ground
law;
of prescription when the parties
3. Upon a
pleadings or other facts on record
judgment. (Emphasis
show it to be indeed time-barred
supplied.)
x x x; and it may do so on the
basis of a motion to dismiss, or an
answer which sets up such
ground as an affirmative defense; Moreover, in Nielson & Co., Inc. v. Lepanto
or even if the ground is alleged
after judgment on the merits, as in Consolidated Mining Co.,[30] we held that the term
a motion for reconsideration; or
even if the defense has not been written contract includes the minutes of the meeting
asserted at all, as where no
of the board of directors of a corporation, which
statement thereof is found in the
pleadings, or where a defendant minutes were adopted by the parties although not
has been declared in
default. What is essential only, signed by them, to wit:
to repeat, is that the facts
demonstrating the lapse of the
prescriptive period, be Coming now to the question of
otherwise sufficiently and prescription raised by defendant
satisfactorily apparent on the Lepanto, it is contended by the
record; either in the averments latter that the period to be
of the plaintiffs complaint, or considered for the prescription of
otherwise established by the the claim regarding participation
evidence.[29] (Emphasis in the profits is only four years,
supplied.) because the modification of the
sharing embodied in the
management contract is merely
verbal, no written document to
 that effect having been presented.
This contention is untenable. The Aznar, et al., filed any action for reimbursement or
modification appears in the
refund of their contributions against RISCO or even
minutes of the special meeting of
the Board of Directors of Lepanto against PNB. Instead the suit that Aznar, et al.,
held on August 21, 1940, it
having been made upon the brought before the trial court only on January 28, 1998
authority of its President, and in
said minutes the terms of was one to quiet title over the properties purchased by
modification had been specified.
RISCO with their contributions. It is unmistakable
This is sufficient to have the
agreement considered, for the that their right of action to claim for refund or
purpose of applying the statute of
limitations, as a written contract payment of their contributions had long
even if the minutes were not
signed by the parties (3 A.L.R., prescribed. Thus, it was reversible error for the Court
2d, p. 831). It has been held that a of Appeals to order PNB to pay Aznar, et al., the
writing containing the terms of a
contract if adopted by two amount of their liens based on the Minutes with legal
persons may constitute a contract
in writing even if the same is not interests from the time of PNBs acquisition of the
signed by either of the parties (3
A.L.R., 2d, pp. 812-813). subject properties.
Another authority says that an
unsigned agreement the terms of
which are embodied in a In view of the foregoing, it is unnecessary
document unconditionally
accepted by both parties is a for the Court to pass upon the other issues raised by
written contract (Corbin on
Contracts, Vol. I, p. 85).[31] the parties.

WHEREFORE, the petition of Aznar, et

Applied to the case at bar, the Minutes
al., in G.R. No. 172021 is DENIED for lack of
which was approved on March 14, 1961 is considered
merit. The petition of PNB in G.R. No. 171805
as a written contract between Aznar, et al., and
is GRANTED. The Complaint, docketed as Civil
RISCO for the reimbursement of the contributions of
Case No. CEB-21511, filed by Aznar, et al., is
the former. As such, the former had a period of ten
hereby DISMISSED. No costs.
(10) years from 1961 within which to enforce the said
written contract. However, it does not appear that SO ORDERED.
 EN BANC Petitioners-in-Intervention. June 28, 2011

. GAMBOA, G.R. No. 176579

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - -x
Present:

CORONA, C.J.,

CARPIO, DECISION
SECRETARY MARGARITO B. TEVES,
UNDERSECRETARY JOHN P. SEVILLA,
MISSIONER RICARDO ABCEDE OF VELASCO, JR.,
IDENTIAL COMMISSION ON GOOD
MENT (PCGG) IN THEIR CAPACITIES
AND MEMBERS, RESPECTIVELY, OF LEONARDO-DE CASTRO,
ATIZATION COUNCIL,
BRION, CARPIO, J.:

AN ANTHONI SALIM OF FIRST PACIFIC

IN HIS CAPACITY AS DIRECTOR OF PERALTA,
ACIFIC ASSET HOLDINGS INC.,
AN MANUEL V. PANGILINAN OF BERSAMIN,
NE LONG DISTANCE TELEPHONE
Y (PLDT) IN HIS CAPACITY AS The Case
NG DIRECTOR OF FIRST PACIFIC CO., DEL CASTILLO,
SIDENT NAPOLEON L. NAZARENO OF
NE LONG DISTANCE TELEPHONE ABAD,
Y, CHAIR FE BARIN OF THE
ES EXCHANGE COMMISSION, and VILLARAMA, JR., This is an original petition for prohibition,
NT FRANCIS LIM OF THE PHILIPPINE injunction, declaratory relief and declaration of
XCHANGE, nullity of the sale of shares of stock of Philippine
PEREZ, Telecommunications Investment Corporation (PTIC)
s. by the government of the Republic of the Philippines
MENDOZA, and to Metro Pacific Assets Holdings, Inc. (MPAH), an
PABLITO V. SANIDAD and Promulgated: affiliate of First Pacific Company Limited (First
Pacific).
SERENO, JJ.
ARNO V. SANIDAD,
 The Antecedents
The facts, according to petitioner Wilson P. Gamboa,
a stockholder of Philippine Long Distance
Telephone Company (PLDT), are as follows:1
On 28 November 1928, the Philippine Legislature
enacted Act No. 3436 which granted PLDT a
franchise and the right to engage in
telecommunications business. In 1969, General
Telephone and Electronics Corporation (GTE), an
American company and a major PLDT stockholder,
sold 26 percent of the outstanding common shares of
PLDT to PTIC. In 1977, Prime Holdings, Inc. (PHI)
was incorporated by several persons, including
Roland Gapud and Jose Campos, Jr. Subsequently,
PHI became the owner of 111,415 shares of stock of
PTIC by virtue of three Deeds of Assignment
executed by PTIC stockholders
Ramon Cojuangco and Luis Tirso Rivilla. In 1986,
the 111,415 shares of stock of PTIC held by PHI
were sequestered by the Presidential Commission on
Good Government (PCGG). The 111,415 PTIC
shares, which represent about 46.125 percent of the
outstanding capital stock of PTIC, were later
declared by this Court to be owned by the Republic
of the Philippines.2
In 1999, First Pacific, a Bermuda-registered, Hong
Kong-based investment firm, acquired the remaining
54 percent of the outstanding capital stock of PTIC.
On 20 November 2006, the Inter-Agency
Privatization Council (IPC) of the Philippine
Government announced that it would sell the
111,415 PTIC shares, or 46.125 percent of the
outstanding capital stock of PTIC, through a public
bidding to be conducted on 4 December 2006.
Subsequently, the public bidding was reset to 8
December 2006, and only two bidders, Parallax
Venture Fund XXVII (Parallax) and Pan-Asia
Presidio Capital, submitted their bids. Parallax won
with a bid of P25.6 billion or US$510 million.
Thereafter, First Pacific announced that it would
exercise its right of first refusal as a PTIC
stockholder and buy the 111,415 PTIC shares by
matching the bid price of Parallax. However, First
Pacific failed to do so by the 1 February 2007
deadline set by IPC and instead, yielded its right to
PTIC itself which was then given by IPC until 2
March 2007 to buy the PTIC shares. On 14 February
2007, First Pacific, through its subsidiary, MPAH,
entered into a Conditional Sale and Purchase
Agreement of the 111,415 PTIC shares, or 46.125
percent of the outstanding capital stock of PTIC,
with the Philippine Government for the price
of P25,217,556,000 or US$510,580,189. The sale
was completed on 28 February 2007.
Since PTIC is a stockholder of PLDT, the sale by the
Philippine Government of 46.125 percent of PTIC
shares is actually an indirect sale of 12 million shares
or about 6.3 percent of the outstanding common
shares of PLDT. With the sale, First Pacifics
common shareholdings in PLDT increased from
30.7 percent to 37 percent, thereby increasing the
common shareholdings of foreigners in PLDT to
about 81.47 percent. This violates Section 11,
Article XII of the 1987 Philippine Constitution
which limits foreign ownership of the capital of a
public utility to not more than 40 percent.3
On the other hand, public respondents Finance
Secretary Margarito B. Teves, Undersecretary John
P. Sevilla, and PCGG Commissioner
Ricardo Abcede allege the following relevant facts:
On 9 November 1967, PTIC was incorporated and
had since engaged in the business of investment
holdings. PTIC held 26,034,263 PLDT common
shares, or 13.847 percent of the total PLDT
outstanding common shares. PHI, on the other hand,
was incorporated in 1977, and became the owner of
111,415 PTIC shares or 46.125 percent of the
outstanding capital stock of PTIC by virtue of three
Deeds of Assignment executed by
Ramon Cojuangco and Luis Tirso Rivilla. In 1986,
the 111,415 PTIC shares held by PHI were
sequestered by the PCGG, and subsequently declared
by this Court as part of the ill-gotten wealth of
former President Ferdinand Marcos. The sequestered
PTIC shares were reconveyed to the Republic of the
Philippines in accordance with this Courts
decision4 which became final and executory on 8
August 2006.
The Philippine Government decided to sell the
111,415 PTIC shares, which represent 6.4 percent of
the outstanding common shares of stock of PLDT,
and designated the Inter-Agency Privatization
Council (IPC), composed of the Department of
Finance and the PCGG, as the disposing entity. An
invitation to bid was published in seven different
newspapers from 13 to 24 November 2006. On 20
November 2006, a pre-bid conference was held, and
the original deadline for bidding scheduled on 4
December 2006 was reset to 8 December 2006. The
extension was published in nine different
newspapers.
During the 8 December 2006 bidding, Parallax
Capital Management LP emerged as the highest
bidder with a bid of P25,217,556,000. The
government notified First Pacific, the majority owner
of PTIC shares, of the bidding results and gave First
Pacific until 1 February 2007 to exercise its right of
first refusal in accordance with PTICs Articles of
Incorporation. First Pacific announced its intention
to match Parallaxs bid.
On 31 January 2007, the House of Representatives
(HR) Committee on Good Government conducted a
public hearing on the particulars of the then
impending sale of the 111,415 PTIC shares.
Respondents Teves and Sevilla were among those
who attended the public hearing. The HR Committee
Report No. 2270 concluded that: (a) the auction of
the governments 111,415 PTIC shares bore due
diligence, transparency and conformity with existing
legal procedures; and (b) First Pacifics intended
acquisition of the governments 111,415 PTIC
shares resulting in First Pacifics 100% ownership
of PTIC will not violate the 40 percent
constitutional limit on foreign ownership of a
public utility since PTIC holds only 13.847
percent of the total outstanding common shares of
PLDT.5 On 28 February 2007, First Pacific
completed the acquisition of the 111,415 shares of
stock of PTIC.
Respondent Manuel V. Pangilinan admits the
following facts: (a) the IPC conducted a public
bidding for the sale of 111,415 PTIC shares or 46
percent of the outstanding capital stock of PTIC (the
remaining 54 percent of PTIC shares was already
owned by First Pacific and its affiliates); (b) Parallax
offered the highest bid amounting
to P25,217,556,000; (c) pursuant to the right of first
refusal in favor of PTIC and its shareholders granted
in PTICs Articles of Incorporation, MPAH, a First
Pacific affiliate, exercised its right of first refusal by
matching the highest bid offered for PTIC shares on
13 February 2007; and (d) on 28 February 2007, the
sale was consummated when MPAH paid
IPC P25,217,556,000 and the government delivered
the certificates for the 111,415 PTIC shares.
Respondent Pangilinan denies the other allegations
of facts of petitioner.
On 28 February 2007, petitioner filed the instant
petition for prohibition, injunction, declaratory relief,
and declaration of nullity of sale of the 111,415
PTIC shares. Petitioner claims, among others, that
the sale of the 111,415 PTIC shares would result in
an increase in First Pacifics common shareholdings
in PLDT from 30.7 percent to 37 percent, and this,
combined with Japanese NTT DoCoMos common
shareholdings in PLDT, would result to a total
foreign common shareholdings in PLDT of 51.56
percent which is over the 40 percent constitutional
limit.6 Petitioner asserts:
If and when the sale is completed, First
Pacifics equity in PLDT will go up from
30.7 percent to 37.0 percent of its common
or voting- stockholdings, x x x. Hence, the
consummation of the sale will put the two
largest foreign investors in PLDT First
Pacific and Japans NTT DoCoMo, which
is the worlds largest wireless
telecommunications firm, owning 51.56
percent of PLDT common equity.
x x x With the completion of the sale, data
culled from the official website of the New
York Stock Exchange (www.nyse.com)
showed that those foreign entities, which
own at least five percent of common
equity, will collectively own 81.47 percent
of PLDTs common equity. x x x
x x x as the annual
disclosure reports, also
referred to as Form 20-
K reports x x x which
PLDT submitted to the
New York Stock
Exchange for the
period 2003-2005,
revealed that First
Pacific and several
other foreign entities
breached the
constitutional limit of
40 percent ownership
as early as 2003. x x x7
Petitioner raises the following issues: (1) whether the
consummation of the then impending sale of 111,415
PTIC shares to First Pacific violates the
constitutional limit on foreign ownership of a public
utility; (2) whether public respondents committed
grave abuse of discretion in allowing the sale of the
111,415 PTIC shares to First Pacific; and (3)
whether the sale of common shares to foreigners in
excess of 40 percent of the entire subscribed
common capital stock violates the constitutional
limit on foreign ownership of a public utility.8
On 13 August 2007, Pablito V. Sanidad and Arno
V. Sanidad filed a Motion for Leave to Intervene and
Admit Attached Petition-in-Intervention. In the
Resolution of 28 August 2007, the Court granted the
motion and noted the Petition-in-Intervention.
Petitioners-in-intervention join petitioner
Wilson Gamboa x x x in seeking, among others, to
enjoin and/or nullify the sale by respondents of the
111,415 PTIC shares to First Pacific or assignee.
Petitioners-in-intervention claim that, as PLDT
subscribers, they have a stake in the outcome of the
controversy x x x where the Philippine Government
is completing the sale of government owned assets in
[PLDT], unquestionably a public utility, in violation
of the nationality restrictions of the Philippine
Constitution.
The Issue
This Court is not a trier of facts. Factual questions
such as those raised by petitioner,9 which
indisputably demand a thorough examination of the
evidence of the parties, are generally beyond this
Courts jurisdiction. Adhering to this well-settled
principle, the Court shall confine the resolution of
the instant controversy solely on the threshold and
purely legal issue of whether the term capital in
Section 11, Article XII of the Constitution refers to
the total common shares only or to the total
outstanding capital stock (combined total of common
and non-voting preferred shares) of PLDT, a public
utility.
The Ruling of the Court
The petition is partly meritorious.
Petition for declaratory relief treated as petition for
mandamus
At the outset, petitioner is faced with a procedural
barrier. Among the remedies petitioner seeks, only
the petition for prohibition is within the original
jurisdiction of this court, which however is not
exclusive but is concurrent with the Regional Trial
Court and the Court of Appeals. The actions for
declaratory relief,10 injunction, and annulment of
sale are not embraced within the original jurisdiction
of the Supreme Court. On this ground alone, the
petition could have been dismissed outright.
While direct resort to this Court may be justified in a
petition for prohibition,11 the Court shall
nevertheless refrain from discussing the grounds in
support of the petition for prohibition since on 28
February 2007, the questioned sale was
consummated when MPAH paid
IPC P25,217,556,000 and the government delivered
the certificates for the 111,415 PTIC shares.
However, since the threshold and purely legal issue
on the definition of the term capital in Section 11,
Article XII of the Constitution has far-reaching
implications to the national economy, the Court
treats the petition for declaratory relief as one for
mandamus.12
In Salvacion v. Central Bank of the Philippines,13 the
Court treated the petition for declaratory relief as one
for mandamus considering the grave injustice that
would result in the interpretation of a banking law.
In that case, which involved the crime of rape
committed by a foreign tourist against a Filipino
minor and the execution of the final judgment in the
civil case for damages on the tourists dollar deposit
with a local bank, the Court declared Section 113 of
Central Bank Circular No. 960, exempting foreign
currency deposits from attachment, garnishment or
any other order or process of any court, inapplicable
due to the peculiar circumstances of the case. The
Court held that injustice would result especially to a
citizen aggrieved by a foreign guest like accused
x x x that would negate Article 10 of the Civil Code
which provides that in case of doubt in the
interpretation or application of laws, it is presumed
that the lawmaking body intended right and justice to
prevail. The Court therefore required respondents
Central Bank of the Philippines, the local bank, and
the accused to comply with the writ of execution
issued in the civil case for damages and to release
the dollar deposit of the accused to satisfy the
judgment.
In Alliance of Government Workers v. Minister of
Labor,14 the Court similarly brushed aside the
procedural infirmity of the petition for declaratory
relief and treated the same as one for mandamus.
In Alliance, the issue was whether the government
unlawfully excluded petitioners, who were
government employees, from the enjoyment of rights
to which they were entitled under the law.
Specifically, the question was: Are the branches,
agencies, subdivisions, and instrumentalities of the
Government, including government owned or
controlled corporations included among the four
employers under Presidential Decree No. 851 which
are required to pay their employees x x x a thirteenth
(13th) month pay x x x ? The Constitutional
principle involved therein affected all government
employees, clearly justifying a relaxation of the
technical rules of procedure, and certainly requiring
the interpretation of the assailed presidential decree.
In short, it is well-settled that this Court may treat a
petition for declaratory relief as one for mandamus if
the issue involved has far-reaching implications. As
this Court held in Salvacion:
The Court has no original and exclusive
jurisdiction over a petition for declaratory
relief. However, exceptions to this rule
have been recognized. Thus, where the
petition has far-reaching implications
and raises questions that should be
resolved, it may be treated as one for
mandamus.15 (Emphasis supplied)
In the present case, petitioner seeks primarily the
interpretation of the term capital in Section 11,
Article XII of the Constitution. He prays that this
Court declare that the term capital refers to common
shares only, and that such shares constitute the sole
basis in determining foreign equity in a public utility.
Petitioner further asks this Court to declare any
ruling inconsistent with such interpretation
unconstitutional.
The interpretation of the term capital in Section 11,
Article XII of the Constitution has far-reaching
implications to the national economy. In fact, a
resolution of this issue will determine whether
Filipinos are masters, or second class citizens, in
their own country. What is at stake here is whether
Filipinos or foreigners will have effective control of
the national economy. Indeed, if ever there is a legal
issue that has far-reaching implications to the entire
nation, and to future generations of Filipinos, it is
the threshhold legal issue presented in this case.
The Court first encountered the issue on the
definition of the term capital in Section 11, Article
XII of the Constitution in the case of Fernandez
v. Cojuangco, docketed as G.R. No. 157360.16 That
case involved the same public utility (PLDT) and
substantially the same private respondents. Despite
the importance and novelty of the constitutional
issue raised therein and despite the fact that the
petition involved a purely legal question, the Court
declined to resolve the case on the merits, and
instead denied the same for disregarding the
hierarchy of courts.17 There, petitioner Fernandez
assailed on a pure question of law the Regional Trial
Courts Decision of 21 February 2003 via a petition
for review under Rule 45. The Courts Resolution,
denying the petition, became final on 21 December
2004.
The instant petition therefore presents the Court with
another opportunity to finally settle this purely legal
issue which is of transcendental importance to the
national economy and a fundamental requirement to
a faithful adherence to our Constitution. The Court
must forthwith seize such opportunity, not only for
the benefit of the litigants, but more significantly for
the benefit of the entire Filipino people, to ensure, in
the words of the Constitution, a self-reliant and
independent national economy effectively
controlled by Filipinos.18 Besides, in the light of
vague and confusing positions taken by government
agencies on this purely legal issue, present and future
foreign investors in this country deserve, as a matter
of basic fairness, a categorical ruling from this Court
on the extent of their participation in the capital of
public utilities and other nationalized businesses.
Despite its far-reaching implications to the national
economy, this purely legal issue has remained
unresolved for over 75 years since the 1935
Constitution. There is no reason for this Court to
evade this ever recurring fundamental issue and
delay again defining the term capital, which appears
not only in Section 11, Article XII of the
Constitution, but also in Section 2, Article XII on co-
production and joint venture agreements for the
development of our natural resources,19 in Section 7,
Article XII on ownership of private lands,20 in
Section 10, Article XII on the reservation of certain
investments to Filipino citizens,21 in Section 4(2),
Article XIV on the ownership of educational
institutions,22 and in Section 11(2), Article XVI on
the ownership of advertising companies.23
Petitioner has locus standi
There is no dispute that petitioner is a stockholder of
PLDT. As such, he has the right to question the
subject sale, which he claims to violate the
nationality requirement prescribed in Section 11,
Article XII of the Constitution. If the sale indeed
violates the Constitution, then there is a possibility
that PLDTs franchise could be revoked, a dire
consequence directly affecting petitioners interest as
a stockholder.
More importantly, there is no question that the
instant petition raises matters of transcendental
importance to the public. The fundamental and
threshold legal issue in this case, involving the
national economy and the economic welfare of the
Filipino people, far outweighs any perceived
impediment in the legal personality of the petitioner
to bring this action.
In Chavez v. PCGG,24 the Court upheld the right of a
citizen to bring a suit on matters of transcendental
importance to the public, thus:
In Taada v. Tuvera, the Court asserted that when the
issue concerns a public right and the object of
mandamus is to obtain the enforcement of a
public duty, the people are regarded as the real
parties in interest; and because it is sufficient that
petitioner is a citizen and as such is interested in
the execution of the laws, he need not show that
he has any legal or special interest in the result of
the action. In the aforesaid case, the petitioners
sought to enforce their right to be informed on
matters of public concern, a right then recognized in
Section 6, Article IV of the 1973 Constitution, in
connection with the rule that laws in order to be
valid and enforceable must be published in the
Official Gazette or otherwise effectively
promulgated. In ruling for the petitioners legal
standing, the Court declared that the right they
sought to be enforced is a public right recognized by
no less than the fundamental law of the land.
Legaspi v. Civil Service Commission, while
reiterating Taada, further declared that when a
mandamus proceeding involves the assertion of a
public right, the requirement of personal interest
is satisfied by the mere fact that petitioner is a
citizen and, therefore, part of the general public
which possesses the right.
Further, in Albano v. Reyes, we said that while
expenditure of public funds may not have been
involved under the questioned contract for the
development, management and operation of the
Manila International Container Terminal, public
interest [was] definitely involved considering the
important role [of the subject contract] . . . in the
economic development of the country and the
magnitude of the financial consideration involved.
We concluded that, as a consequence, the disclosure
provision in the Constitution would constitute
sufficient authority for upholding the petitioners
standing. (Emphasis supplied)
Clearly, since the instant petition, brought by a
citizen, involves matters of transcendental public
importance, the petitioner has the
requisite locus standi.
Definition of the Term Capital in
Section 11, Article XII of the 1987 Constitution
The above provision substantially reiterates Section
5, Article XIV of the 1973 Constitution, thus:
Section 11, Article XII (National Economy and
Patrimony) of the 1987 Constitution mandates
the Filipinization of public utilities, to wit:
Section 11. No franchise, certificate, or
any other form of authorization for the
operation of a public utility shall be
granted except to citizens of the
Philippines or to corporations or
associations organized under the laws of
the Philippines, at least sixty per centum
of whose capital is owned by such
citizens; nor shall such franchise,
certificate, or authorization be exclusive in
character or for a longer period than fifty
years. Neither shall any such franchise or
right be granted except under the condition
that it shall be subject to amendment,
alteration, or repeal by the Congress when
the common good so requires. The State
shall encourage equity participation in
public utilities by the general public. The
participation of foreign investors in the
governing body of any public utility
enterprise shall be limited to their
proportionate share in its capital, and all
the executive and managing officers of
such corporation or association must be
citizens of the Philippines. (Emphasis
supplied)
Section 5. No franchise, certificate, or
any other form of authorization for the
operation of a public utility shall be
granted except to citizens of the
Philippines or to corporations or
associations organized under the laws of
the Philippines at least sixty per centum
of the capital of which is owned by such
citizens, nor shall such franchise,
certificate, or authorization be exclusive in
character or for a longer period than fifty
 years. Neither shall any such franchise or
right be granted except under the condition
that it shall be subject to amendment,
alteration, or repeal by the National
Assembly when the public interest so
requires. The State shall encourage equity
participation in public utilities by the
general public. The participation of foreign
investors in the governing body of any
public utility enterprise shall be limited to
their proportionate share in the capital
thereof. (Emphasis supplied)
The foregoing provision in the 1973 Constitution
reproduced Section 8, Article XIV of the 1935
Constitution, viz:
Section 8. No franchise, certificate, or
any other form of authorization for the
operation of a public utility shall be
granted except to citizens of the
Philippines or to corporations or other
entities organized under the laws of the
Philippines sixty per centum of the
capital of which is owned by citizens of
the Philippines, nor shall such franchise,
certificate, or authorization be exclusive in
character or for a longer period than fifty
years. No franchise or right shall be
granted to any individual, firm, or
corporation, except under the condition
that it shall be subject to amendment,
alteration, or repeal by the Congress when
the public interest so requires. (Emphasis
supplied)
Father Joaquin G. Bernas, S.J., a leading member of
the 1986 Constitutional Commission, reminds us that
the Filipinization provision in the 1987 Constitution
is one of the products of the spirit of nationalism
which gripped the 1935 Constitutional
Convention.25 The 1987 Constitution provides for
the Filipinization of public utilities by requiring that
any form of authorization for the operation of public
utilities should be granted only to citizens of the
Philippines or to corporations or associations
organized under the laws of the Philippines at least
sixty per centum of whose capital is owned by such
citizens. The provision is [an express] recognition
of the sensitive and vital position of public utilities
both in the national economy and for national
security.26 The evident purpose of the citizenship
requirement is to prevent aliens from assuming
control of public utilities, which may be inimical to
the national interest.27 This specific provision
explicitly reserves to Filipino citizens control of
public utilities, pursuant to an overriding economic
goal of the 1987 Constitution: to conserve and
develop our patrimony28 and ensure a self-reliant and
independent national
economy effectively controlled by Filipinos.29
Any citizen or juridical entity desiring to operate a
public utility must therefore meet the minimum
nationality requirement prescribed in Section 11,
Article XII of the Constitution. Hence, for a
corporation to be granted authority to operate a
public utility, at least 60 percent of its capital must
be owned by Filipino citizens.
The crux of the controversy is the definition of the
term capital. Does the term capital in Section 11,
Article XII of the Constitution refer to common
shares or to the total outstanding capital stock
(combined total of common and non-voting
preferred shares)?
Petitioner submits that the 40 percent foreign equity
limitation in domestic public utilities refers only to
common shares because such shares are entitled to
vote and it is through voting that control over a
corporation is exercised. Petitioner posits that the
term capital in Section 11, Article XII of the
Constitution refers to the ownership of common
capital stock subscribed and outstanding, which class
of shares alone, under the corporate set-up of PLDT,
can vote and elect members of the board of directors.
It is undisputed that PLDTs non-voting preferred
shares are held mostly by Filipino citizens.30 This
arose from Presidential Decree No. 217,31 issued on
16 June 1973 by then President Ferdinand Marcos,
requiring every applicant of a PLDT telephone line
to subscribe to non-voting preferred shares to pay for
the investment cost of installing the telephone line.32
Petitioners-in-intervention basically reiterate
petitioners arguments and adopt petitioners
definition of the term capital.33 Petitioners-in-
intervention allege that the approximate foreign
ownership of common capital stock of PLDT
x x x already amounts to at least 63.54% of the total
outstanding common stock, which means that
foreigners exercise significant control over PLDT,
patently violating the 40 percent foreign equity
limitation in public utilities prescribed by the
Constitution.
Respondents, on the other hand, do not offer any
definition of the term capital in Section 11, Article
XII of the Constitution. More importantly, private
respondents Nazareno and Pangilinan of PLDT do
not dispute that more than 40 percent of the common
shares of PLDT are held by foreigners.
In particular, respondent Nazarenos Memorandum,
consisting of 73 pages, harps mainly on the
procedural infirmities of the petition and the
supposed violation of the due process rights of the
affected foreign common shareholders.
Respondent Nazareno does not deny petitioners
allegation of foreigners dominating the common
shareholdings of PLDT. Nazarenostressed mainly
that the petition seeks to divest foreign common
shareholders purportedly exceeding 40% of the
total common shareholdings in PLDT of their
ownership over their shares. Thus, the foreign
natural and juridical PLDT shareholders must
be impleaded in this suit so that they can be
heard.34 Essentially, Nazareno invokes denial of due
process on behalf of the foreign common
shareholders.
While Nazareno does not introduce any definition of
the term capital, he states that among the factual
assertions that need to be established to counter
petitioners allegations is the uniform
interpretation by government agencies (such as
the SEC), institutions and corporations (such as
the Philippine National Oil Company-Energy
Development Corporation or PNOC-EDC) of
including both preferred shares and common
shares in controlling interest in view of testing
compliance with the 40% constitutional limitation
on foreign ownership in public utilities.35
Similarly, respondent Manuel V. Pangilinan does not
define the term capital in Section 11, Article XII of
the Constitution. Neither does he refute petitioners
claim of foreigners holding more than 40 percent of
PLDTs common shares. Instead,
respondent Pangilinan focuses on the procedural
flaws of the petition and the alleged violation of the
due process rights of foreigners.
Respondent Pangilinan emphasizes in his
Memorandum (1) the absence of this Courts
jurisdiction over the petition; (2) petitioners lack of
standing; (3) mootness of the petition; (4) non-
availability of declaratory relief; and (5) the denial of
due process rights. Moreover,
respondent Pangilinan alleges that the issue should
be whether owners of shares in PLDT as well as
owners of shares in companies holding shares in
PLDT may be required to relinquish their shares in
PLDT and in those companies without any law
requiring them to surrender their shares and also
without notice and trial.
Respondent Pangilinan further asserts that Section
11, [Article XII of the Constitution] imposes no
nationality requirement on the shareholders of
the utility company as a condition for keeping
their shares in the utility company. According to
him, Section 11 does not authorize taking one
persons property (the shareholders stock in the utility
company) on the basis of another partys alleged
failure to satisfy a requirement that is a condition
only for that other partys retention of another piece
of property (the utility company being at least 60%
Filipino-owned to keep its franchise).36
The OSG, representing public respondents
Secretary Margarito Teves, Undersecretary John
P. Sevilla, Commissioner Ricardo Abcede, and
Chairman Fe Barin, is likewise silent on the
definition of the term capital. In its
Memorandum37 dated 24 September 2007, the OSG
also limits its discussion on the supposed procedural
defects of the petition, i.e. lack of standing, lack of
jurisdiction, non-inclusion of interested parties, and
lack of basis for injunction. The OSG does not
present any definition or interpretation of the term
capital in Section 11, Article XII of the Constitution.
The OSG contends that the petition actually partakes
of a collateral attack on PLDTs franchise as a public
utility, which in effect requires a full-blown trial
where all the parties in interest are given their day in
court.38
Respondent Francisco Ed Lim, impleaded as
President and Chief Executive Officer of the
Philippine Stock Exchange (PSE), does not also
define the term capital and seeks the dismissal of the
petition on the following grounds: (1) failure to state
a cause of action against Lim; (2) the PSE allegedly
implemented its rules and required all listed
companies, including PLDT, to make proper and
timely disclosures; and (3) the reliefs prayed for in
the petition would adversely impact the stock
market.
In the earlier case of Fernandez v. Cojuangco,
petitioner Fernandez who claimed to be a
stockholder of record of PLDT, contended that the
term capital in the 1987 Constitution refers to shares
entitled to vote or the common shares. Fernandez
explained thus:
The forty percent (40%) foreign equity
limitation in public utilities prescribed by
the Constitution refers to ownership of
shares of stock entitled to vote, i.e.,
common shares, considering that it is
through voting that control is being
exercised. x x x
Obviously, the intent of the framers of the
Constitution in imposing limitations and
restrictions on fully nationalized and
partially nationalized activities is for
Filipino nationals to be always in control
of the corporation undertaking said
activities. Otherwise, if the Trial Courts
ruling upholding respondents arguments
were to be given credence, it would be
possible for the ownership structure of a
public utility corporation to be divided into
one percent (1%) common stocks and
ninety-nine percent (99%) preferred
stocks. Following the Trial Courts ruling
adopting respondents arguments, the
common shares can be owned entirely by
foreigners thus creating an absurd situation
wherein foreigners, who are supposed to
be minority shareholders, control the
public utility corporation.
xxxx
Thus, the 40% foreign ownership
limitation should be interpreted to apply to
both the beneficial ownership and the
controlling interest.
xxxx
the clear intent of the framers of the
Constitution.
Clearly, therefore, the forty percent (40%)
foreign equity limitation in public utilities
prescribed by the Constitution refers to
ownership of shares of stock entitled to In the same vein, the SECs construction of
vote, i.e., common shares. Furthermore, Section 11, Article XII of the Constitution
ownership of record of shares will not is at best merely advisory for it is the
suffice but it must be shown that the legal courts that finally determine what a law
and beneficial ownership rests in the hands means.39
of Filipino citizens. Consequently, in the
case of petitioner PLDT, since it is already
admitted that the voting interests of
foreigners which would gain entry to
petitioner PLDT by the acquisition of
SMART shares through the Questioned
Transactions is equivalent to 82.99%, and On the other hand, respondents therein, Antonio
the nominee arrangements between the O. Cojuangco, Manuel V. Pangilinan, Carlos A.
foreign principals and the Filipino owners Arellano, Helen Y. Dee, Magdangal B.
is likewise admitted, there is, therefore, a Elma, Mariles Cacho-Romulo,
violation of Section 11, Article XII of the Fr. Bienvenido F. Nebres, Ray C. Espinosa,
Constitution. Napoleon L. Nazareno, Albert F. Del Rosario, and
Orlando B. Vea, argued that the term capital in
Parenthetically, the Opinions dated Section 11, Article XII of the Constitution includes
February 15, 1988 and April 14, 1987 cited preferred shares since the Constitution does not
by the Trial Court to support the distinguish among classes of stock, thus:
proposition that the meaning of the word
capital as used in Section 11, Article XII of
the Constitution allegedly refers to the sum
total of the shares subscribed and paid-in
by the shareholder and it allegedly is 16. The Constitution applies its foreign
immaterial how the stock is classified, ownership limitation on the corporations
whether as common or preferred, cannot capital, without distinction as to classes of
stand in the face of a clear legislative shares. x x x
policy as stated in the FIA which took
effect in 1991 or way after said opinions
were rendered, and as clarified by the
above-quoted Amendments. In this regard,
In this connection, the Corporation Code
suffice it to state that as between the law
which was already in force at the time the
and an opinion rendered by an
present (1987) Constitution was drafted
administrative agency, the law indubitably
defined outstanding capital stock as
prevails. Moreover, said Opinions are
follows:
merely advisory and cannot prevail over

Section 137. Outstanding capital stock
defined. The term outstanding capital
stock, as used in this Code, means the total
shares of stock issued under binding
subscription agreements to subscribers or
stockholders, whether or not fully or
partially paid, except treasury shares.
Section 137 of the Corporation Code also
does not distinguish between common and
preferred shares, nor exclude either class
of shares, in determining the outstanding
capital stock (the capital) of a corporation.
Consequently, petitioners suggestion to
reckon PLDTs foreign equity only on the
basis of PLDTs outstanding common
shares is without legal basis. The language
of the Constitution should be understood in
the sense it has in common use.
xxxx
17. But even assuming that resort to the
proceedings of the Constitutional
Commission is necessary, there is nothing
in the Record of the Constitutional
Commission (Vol. III) which petitioner
misleadingly cited in the Petition
x x x which supports petitioners view that
only common shares should form the basis
for computing a public utilitys foreign
equity.
xxxx
18. In addition, the SEC the government
agency primarily responsible for
implementing the Corporation Code, and
which also has the responsibility of
ensuring compliance with the
Constitutions foreign equity restrictions as
regards nationalized activities x x x has
categorically ruled that both common and
preferred shares are properly considered in
determining outstanding capital stock and
the nationality composition thereof.40
We agree with petitioner and petitioners-in-
intervention. The term capital in Section 11, Article
XII of the Constitution refers only to shares of stock
entitled to vote in the election of directors, and thus
in the present case only to common shares,41 and not
to the total outstanding capital stock comprising both
common and non-voting preferred shares.
The Corporation Code of the Philippines42 classifies
shares as common or preferred, thus:
Sec. 6. Classification of shares. - The
shares of stock of stock corporations may
be divided into classes or series of shares,
or both, any of which classes or series of
shares may have such rights, privileges or
restrictions as may be stated in the articles
of incorporation: Provided, That no share
may be deprived of voting rights except
those classified and issued as preferred
or redeemable shares, unless otherwise
provided in this Code: Provided, further,
That there shall always be a class or series
of shares which have complete voting
rights. Any or all of the shares or series of
shares may have a par value or have no par
value as may be provided for in the articles
of incorporation: Provided,
however, That banks, trust companies,
insurance companies, public utilities, and
building and loan associations shall not be
permitted to issue no-par value shares of
stock.
Preferred shares of stock issued by any
corporation may be given preference in the
distribution of the assets of the corporation
in case of liquidation and in the
distribution of dividends, or such other
preferences as may be stated in the articles
of incorporation which are not violative of
the provisions of this Code: Provided, That
preferred shares of stock may be issued
only with a stated par value. The Board of
Directors, where authorized in the articles
of incorporation, may fix the terms and
conditions of preferred shares of stock or
any series thereof: Provided, That such
terms and conditions shall be effective
upon the filing of a certificate thereof with
the Securities and Exchange Commission.
Shares of capital stock issued without par
value shall be deemed fully paid and non-
assessable and the holder of such shares
shall not be liable to the corporation or to
its creditors in respect thereto: Provided;
That shares without par value may not be
issued for a consideration less than the
value of five (P5.00) pesos per share:
Provided, further, That the entire
consideration received by the corporation
for its no-par value shares shall be treated
as capital and shall not be available for
distribution as dividends.
A corporation may, furthermore, classify
its shares for the purpose of insuring
compliance with constitutional or legal
requirements.
Except as otherwise provided in the
articles of incorporation and stated in the
certificate of stock, each share shall be
equal in all respects to every other share.
Where the articles of incorporation provide
for non-voting shares in the cases allowed
by this Code, the holders of such shares
shall nevertheless be entitled to vote on the
following matters:
1. Amendment of the articles of
incorporation;
2. Adoption and amendment of
by-laws;
3. Sale, lease, exchange,
mortgage, pledge or other
disposition of all or substantially
all of the corporate property;
4. Incurring, creating or
increasing bonded indebtedness;
5. Increase or decrease of capital
stock;
6. Merger or consolidation of the
corporation with another
corporation or other
corporations;
7. Investment of corporate funds
in another corporation or
business in accordance with this
Code; and
8. Dissolution of the corporation.
Except as provided in the immediately
preceding paragraph, the vote necessary to
approve a particular corporate act as
provided in this Code shall be deemed to
refer only to stocks with voting rights.
Indisputably, one of the rights of a stockholder is the
right to participate in the control or management of
the corporation.43 This is exercised through his vote
in the election of directors because it is the board of
directors that controls or manages the
corporation.44 In the absence of provisions in the
articles of incorporation denying voting rights to
preferred shares, preferred shares have the same
voting rights as common shares. However, preferred
shareholders are often excluded from any control,
that is, deprived of the right to vote in the election of
directors and on other matters, on the theory that the
preferred shareholders are merely investors in the
corporation for income in the same manner as
bondholders.45 In fact, under the Corporation Code
only preferred or redeemable shares can be deprived
of the right to vote.46 Common shares cannot be
deprived of the right to vote in any corporate
meeting, and any provision in the articles of
incorporation restricting the right of common
shareholders to vote is invalid.47
Considering that common shares have voting rights
which translate to control, as opposed to preferred
shares which usually have no voting rights, the term
capital in Section 11, Article XII of the Constitution
refers only to common shares. However, if the
preferred shares also have the right to vote in the
election of directors, then the term capital shall
include such preferred shares because the right to
participate in the control or management of the
corporation is exercised through the right to vote in
the election of directors. In short, the term capital
in Section 11, Article XII of the Constitution
refers only to shares of stock that can vote in the
election of directors.
This interpretation is consistent with the intent of the
framers of the Constitution to place in the hands of
Filipino citizens the control and management of
public utilities. As revealed in the deliberations of
the Constitutional Commission, capital refers to the
voting stock or controlling interest of a corporation,
to wit:
MR. NOLLEDO. In Sections 3, 9 and 15,
the Committee stated local or Filipino
equity and foreign equity; namely, 60-40
in Section 3, 60-40 in Section 9 and 2/3-
1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are
always faced with this question: Where do
we base the equity requirement, is it on the
authorized capital stock, on the subscribed
capital stock, or on the paid-up capital
stock of a corporation? Will the
Committee please enlighten me on this?
MR. VILLEGAS. We have just had a long
discussion with the members of the team
from the UP Law Center who provided us
a draft. The phrase that is contained here
which we adopted from the UP draft is
60 percent of voting stock.
MR. NOLLEDO. That must be based on
the subscribed capital stock, because
unless declared delinquent, unpaid capital
stock shall be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one
corporation in another corporation, say, a
corporation with 60-40 percent equity
invests in another corporation which is
permitted by the Corporation Code, does
the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the
understanding of the Committee.
MR. NOLLEDO. Therefore, we need
additional Filipino capital?
MR. VILLEGAS. Yes.48
xxxx
MR. AZCUNA. May I be clarified as to
that portion that was accepted by
the Committee.
MR. VILLEGAS. The portion accepted by
the Committee is the deletion of the phrase
voting stock or controlling interest.
MR. AZCUNA. Hence, without
the Davide amendment, the committee
report would read: corporations or
associations at least sixty percent of whose
CAPITAL is owned by such citizens.
MR. VILLEGAS. Yes.
MR. AZCUNA. So if
the Davide amendment is lost, we are
stuck with 60 percent of the capital to be
owned by citizens.
Thus, 60 percent of the capital assumes, or should
result in, controlling interest in the corporation.
Reinforcing this interpretation of the term capital, as
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be
with the foreigners even if they are the
minority. Let us say 40 percent of the
capital is owned by them, but it is the
voting capital, whereas, the Filipinos
own the nonvoting shares. So we can
have a situation where the corporation
is controlled by foreigners despite being
the minority because they have the
voting capital. That is the anomaly that
would result here.
MR. BENGZON. No, the reason we
eliminated the word stock as stated in
the 1973 and 1935 Constitutions is that
according to Commissioner Rodrigo,
there are associations that do not have
stocks. That is why we say CAPITAL.
MR. AZCUNA. We should not eliminate
the phrase controlling interest.
MR. BENGZON. In the case of stock
corporations, it is assumed.49 (Emphasis
supplied)
referring to controlling interest or shares entitled to
vote, is the definition of a Philippine national in the
Foreign Investments Act of 1991,50 to wit:
SEC. 3. Definitions. - As used in this Act:
shall be considered a Philippine national.
(Emphasis supplied)
In explaining the definition of a Philippine national,
the Implementing Rules and Regulations of the
Foreign Investments Act of 1991 provide:
Compliance with the required Filipino
ownership of a corporation shall be
determined on the basis of outstanding
capital stock whether fully paid or not,
but only such stocks which are generally
entitled to vote are considered.

For stocks to be deemed owned and held

a. The term Philippine national shall
mean a citizen of the Philippines; or a
domestic partnership or association wholly
owned by citizens of the Philippines; or a
corporation organized under the laws of
the Philippines of which at least sixty
percent (60%) of the capital stock
outstanding and entitled to vote is
owned and held by citizens of the
Philippines; or a corporation organized
abroad and registered as doing business in
the Philippines under the Corporation
Code of which one hundred percent
(100%) of the capital stock outstanding
and entitled to vote is wholly owned by
Filipinos or a trustee of funds for pension
or other employee retirement or separation
benefits, where the trustee is a Philippine
national and at least sixty percent (60%) of
the fund will accrue to the benefit of
Philippine nationals: Provided, That where
a corporation and its non-Filipino
stockholders own stocks in a Securities
and Exchange Commission (SEC)
registered enterprise, at least sixty percent
(60%) of the capital stock outstanding and
entitled to vote of each of both
corporations must be owned and held by
citizens of the Philippines and at least sixty
percent (60%) of the members of the
Board of Directors of each of both
corporations must be citizens of the
Philippines, in order that the corporation,
by Philippine citizens or Philippine
nationals, mere legal title is not enough
b. Philippine national shall mean a citizen to meet the required Filipino equity.
of the Philippines or a domestic Full beneficial ownership of the stocks,
partnership or association wholly owned coupled with appropriate voting rights
by the citizens of the Philippines; or a is essential. Thus, stocks, the voting
corporation organized under the laws of rights of which have been assigned or
the Philippines of which at least sixty transferred to aliens cannot be
percent [60%] of the capital stock considered held by Philippine citizens or
outstanding and entitled to vote is Philippine nationals.
owned and held by citizens of the
Philippines; or a trustee of funds for
pension or other employee retirement or
separation benefits, where the trustee is a
Philippine national and at least sixty Individuals or juridical entities not
percent [60%] of the fund will accrue to meeting the aforementioned
the benefit of the Philippine qualifications are considered as non-
nationals; Provided,that where a Philippine nationals. (Emphasis supplied)
corporation its non-Filipino stockholders
own stocks in a Securities and Exchange
Commission [SEC] registered enterprise,
at least sixty percent [60%] of the capital
stock outstanding and entitled to vote of
both corporations must be owned and held
by citizens of the Philippines and at least
sixty percent [60%] of the members of the
Board of Directors of each of both
corporation must be citizens of the
Philippines, in order that the corporation
shall be considered a Philippine national.
The control test shall be applied for this
purpose.
Mere legal title is insufficient to meet the 60 percent
Filipino-owned capital required in the Constitution.
Full beneficial ownership of 60 percent of the
outstanding capital stock, coupled with 60 percent of
the voting rights, is required. The legal and
beneficial ownership of 60 percent of the outstanding
capital stock must rest in the hands of Filipino
nationals in accordance with the constitutional
mandate. Otherwise, the corporation is considered as
non-Philippine national[s].
Under Section 10, Article XII of the Constitution,
Congress may reserve to citizens of the Philippines
or to corporations or associations at least sixty per
centum of whose capital is owned by such citizens,
or such higher percentage as Congress
may prescribe, certain areas of investments. Thus, in
numerous laws Congress has reserved certain areas
of investments to Filipino citizens or to corporations
at least sixty percent of the capital of which is
owned by Filipino citizens. Some of these laws are:
(1) Regulation of Award of Government Contracts or
R.A. No. 5183; (2) Philippine Inventors Incentives
Act or R.A. No. 3850; (3) Magna Carta for Micro,
Small and Medium Enterprises or R.A. No. 6977; (4)
Philippine Overseas Shipping Development Act or
R.A. No. 7471; (5) Domestic Shipping Development
Act of 2004 or R.A. No. 9295; (6) Philippine
Technology Transfer Act of 2009 or R.A. No.
10055; and (7) Ship Mortgage Decree or P.D. No.
1521. Hence, the term capital in Section 11, Article
XII of the Constitution is also used in the same
context in numerous lawsreserving certain areas of
investments to Filipino citizens.
To construe broadly the term capital as the total
outstanding capital stock, including both common
and non-voting preferred shares, grossly contravenes
the intent and letter of the Constitution that the State
shall develop a self-reliant and independent national
economy effectively controlled by Filipinos. A broad
definition unjustifiably disregards who owns the all-
important voting stock, which necessarily equates to
control of the public utility.
We shall illustrate the glaring anomaly in giving a
broad definition to the term capital. Let us assume
that a corporation has 100 common shares owned by
foreigners and 1,000,000 non-voting preferred shares
owned by Filipinos, with both classes of share
having a par value of one peso (P1.00) per share.
Under the broad definition of the term capital, such
corporation would be considered compliant with the
40 percent constitutional limit on foreign equity of
public utilities since the overwhelming majority, or
more than 99.999 percent, of the total outstanding
capital stock is Filipino owned. This is obviously
absurd.
In the example given, only the foreigners holding the
common shares have voting rights in the election of
directors, even if they hold only 100 shares. The
foreigners, with a minuscule equity of less than
0.001 percent, exercise control over the public
utility. On the other hand, the Filipinos, holding
more than 99.999 percent of the equity, cannot vote
in the election of directors and hence, have no
control over the public utility. This starkly
circumvents the intent of the framers of the
Constitution, as well as the clear language of the
Constitution, to place the control of public utilities in
the hands of Filipinos. It also renders illusory the
State policy of an independent national
economy effectively controlled by Filipinos.
The example given is not theoretical but can be
found in the real world, and in fact exists in the
present case.
Holders of PLDT preferred shares are explicitly
denied of the right to vote in the election of directors.
PLDTs Articles of Incorporation expressly state
that the holders of Serial Preferred Stock shall not
be entitled to vote at any meeting of the
stockholders for the election of directors or for
any other purpose or otherwise participate in any
action taken by the corporation or its stockholders, or
to receive notice of any meeting of stockholders.51
On the other hand, holders of common shares are
granted the exclusive right to vote in the election of
directors. PLDTs Articles of Incorporation52 state
that each holder of Common Capital Stock shall
have one vote in respect of each share of such stock
held by him on all matters voted upon by the
stockholders, and the holders of Common Capital
Stock shall have the exclusive right to vote for the
election of directors and for all other purposes.53
In short, only holders of common shares can vote in
the election of directors, meaning only common
shareholders exercise control over PLDT.
Conversely, holders of preferred shares, who have no
voting rights in the election of directors, do not have
any control over PLDT. In fact, under PLDTs
Articles of Incorporation, holders of common shares
have voting rights for all purposes, while holders of
preferred shares have no voting right for any purpose
whatsoever.
It must be stressed, and respondents do not dispute,
that foreigners hold a majority of the common shares
of PLDT. In fact, based on PLDTs 2010 General
Information Sheet (GIS),54which is a document
required to be submitted annually to the Securities
and Exchange Commission,55 foreigners hold
120,046,690 common shares of PLDT whereas
Filipinos hold only 66,750,622 common shares.56 In
other words, foreigners hold 64.27% of the total
number of PLDTs common shares, while Filipinos
hold only 35.73%. Since holding a majority of the
common shares equates to control, it is clear that
foreigners exercise control over PLDT. Such amount
of control unmistakably exceeds the allowable 40
percent limit on foreign ownership of public utilities
expressly mandated in Section 11, Article XII of the
Constitution.
Moreover, the Dividend Declarations of PLDT for
2009,57 as submitted to the SEC, shows that per
share the SIP58 preferred shares earn a pittance in
dividends compared to the common shares. PLDT
declared dividends for the common shares at P70.00
per share, while the declared dividends for the
preferred shares amounted to a measly P1.00 per
share.59 So the preferred shares not only cannot vote
in the election of directors, they also have very little
and obviously negligible dividend earning capacity
compared to common shares.
As shown in PLDTs 2010 GIS,60 as submitted to the
SEC, the par value of PLDT common shares is P5.00
per share, whereas the par value of preferred shares
is P10.00 per share. In other words, preferred shares
have twice the par value of common shares but
cannot elect directors and have only 1/70 of the
dividends of common shares. Moreover, 99.44% of
the preferred shares are owned by Filipinos while
foreigners own only a minuscule 0.56% of the
preferred shares.61 Worse, preferred shares constitute
77.85% of the authorized capital stock of PLDT
while common shares constitute only 22.15%.62 This
undeniably shows that beneficial interest in PLDT is
not with the non-voting preferred shares but with the
common shares, blatantly violating the constitutional
requirement of 60 percent Filipino control and
Filipino beneficial ownership in a public utility.
The legal and beneficial ownership of 60 percent of
the outstanding capital stock must rest in the hands
of Filipinos in accordance with the constitutional
mandate. Full beneficial ownership of 60 percent of
the outstanding capital stock, coupled with 60
percent of the voting rights, is constitutionally
required for the States grant of authority to operate a
public utility. The undisputed fact that the PLDT
preferred shares, 99.44% owned by Filipinos, are
non-voting and earn only 1/70 of the dividends that
PLDT common shares earn, grossly violates the
constitutional requirement of 60 percent Filipino
control and Filipino beneficial ownership of a public
utility.
In short, Filipinos hold less than 60 percent of the
voting stock, and earn less than 60 percent of the
dividends, of PLDT. This directly contravenes the
express command in Section 11, Article XII of the
Constitution that [n]o franchise, certificate, or any
other form of authorization for the operation of a
public utility shall be granted except to
x x xcorporations x x x organized under the laws of
the Philippines, at least sixty per centum of whose
capital is owned by such citizens x x x.
To repeat, (1) foreigners own 64.27% of the
common shares of PLDT, which class of shares
exercises the sole right to vote in the election of
directors, and thus exercise control over PLDT; (2)
Filipinos own only 35.73% of PLDTs common
shares, constituting a minority of the voting stock,
and thus do not exercise control over PLDT; (3)
preferred shares, 99.44% owned by Filipinos, have
no voting rights; (4) preferred shares earn only 1/70
of the dividends that common shares earn;63 (5)
preferred shares have twice the par value of common
shares; and (6) preferred shares constitute 77.85% of
the authorized capital stock of PLDT and common
shares only 22.15%. This kind of ownership and
control of a public utility is a mockery of the
Constitution.
Incidentally, the fact that PLDT common shares with
a par value of P5.00 have a current stock market
value of P2,328.00 per share,64 while PLDT
preferred shares with a par value of P10.00 per share
have a current stock market value ranging from
only P10.92 to P11.06 per share,65 is a glaring
confirmation by the market that control and
beneficial ownership of PLDT rest with the common
shares, not with the preferred shares.
Indisputably, construing the term capital in Section
11, Article XII of the Constitution to include both
voting and non-voting shares will result in the abject
surrender of our telecommunications industry to
foreigners, amounting to a clear abdication of the
States constitutional duty to limit control of public
utilities to Filipino citizens. Such an interpretation
certainly runs counter to the constitutional provision
reserving certain areas of investment to Filipino
citizens, such as the exploitation of natural resources
as well as the ownership of land, educational
institutions and advertising businesses. The Court
should never open to foreign control what the
Constitution has expressly reserved to Filipinos for
that would be a betrayal of the Constitution and of
the national interest. The Court must perform its
solemn duty to defend and uphold the intent and
letter of the Constitution to ensure, in the words of
the Constitution, a self-reliant and independent
national economy effectively controlled by Filipinos.
Section 11, Article XII of the Constitution, like other
provisions of the Constitution expressly reserving to
Filipinos specific areas of investment, such as the
development of natural resources and ownership of
land, educational institutions and advertising
business, is self-executing. There is no need for
legislation to implement these self-executing
provisions of the Constitution. The rationale why
these constitutional provisions are self-executing was
explained in Manila Prince Hotel v. GSIS,66 thus:
x x x Hence, unless it is expressly provided
that a legislative act is necessary to enforce
a constitutional mandate, the presumption
now is that all provisions of the
constitution are self-executing. If the
constitutional provisions are treated as
requiring legislation instead of self-
executing, the legislature would have the
power to ignore and practically nullify the
mandate of the fundamental law. This can
be cataclysmic. That is why the prevailing
view is, as it has always been, that
. . . in case of doubt, the Constitution
should be considered self-executing rather
than non-self-executing. . . . Unless the
contrary is clearly intended, the
provisions of the Constitution should be
considered self-executing, as a contrary
rule would give the legislature discretion
to determine when, or whether, they
shall be effective. These provisions would
be subordinated to the will of the
lawmaking body, which could make them
entirely meaningless by simply refusing to
pass the needed implementing statute.
(Emphasis supplied)
In Manila Prince Hotel, even the Dissenting Opinion
of then Associate Justice Reynato S. Puno, later
Chief Justice, agreed that constitutional provisions
are presumed to be self-executing. Justice Puno
stated:
Courts as a rule consider the provisions of
the Constitution as self-executing, rather
than as requiring future legislation for their
enforcement. The reason is not difficult to
discern. For if they are not treated as
self-executing, the mandate of the
fundamental law ratified by the
sovereign people can be easily ignored
and nullified by Congress. Suffused with
wisdom of the ages is the unyielding rule
that legislative actions may give breath
to constitutional rights but
congressional inaction should not
suffocate them.
Thus, we have treated as self-executing the
provisions in the Bill of Rights on arrests,
searches and seizures, the rights of a
person under custodial investigation, the
rights of an accused, and the privilege
against self-incrimination. It is recognized
that legislation is unnecessary to enable
courts to effectuate constitutional
provisions guaranteeing the fundamental
rights of life, liberty and the protection of
property. The same treatment is accorded
to constitutional provisions forbidding the
taking or damaging of property for public
use without just compensation. (Emphasis
supplied)
Thus, in numerous cases,67 this Court, even in the
absence of implementing legislation, applied directly
the provisions of the 1935, 1973 and 1987
Constitutions limiting land ownership to Filipinos.
In Soriano v. Ong Hoo,68 this Court ruled:
x x x As the Constitution is silent as to the
effects or consequences of a sale by a
citizen of his land to an alien, and as both
the citizen and the alien have violated the
law, none of them should have a recourse
against the other, and it should only be the
State that should be allowed to intervene
and determine what is to be done with the
property subject of the violation. We have
said that what the State should do or could
do in such matters is a matter of public
policy, entirely beyond the scope of
judicial authority. (Dinglasan, et al. vs. Lee
Bun Ting, et al., 6 G. R. No. L-5996, June
27, 1956.) While the legislature has not
 definitely decided what policy should be
followed in cases of violations against
the constitutional prohibition, courts of
justice cannot go beyond by declaring
the disposition to be null and void
as violative of the Constitution.
x x x (Emphasis supplied)
To treat Section 11, Article XII of the Constitution
as not self-executing would mean that since the 1935
Constitution, or over the last 75 years, not one of the
constitutional provisions expressly reserving specific
areas of investments to corporations, at least 60
percent of the capital of which is owned by Filipinos,
was enforceable. In short, the framers of the 1935,
1973 and 1987 Constitutions miserably failed to
effectively reserve to Filipinos specific areas of
investment, like the operation by corporations of
public utilities, the exploitation by corporations of
mineral resources, the ownership by corporations of
real estate, and the ownership of educational
institutions. All the legislatures that convened since
1935 also miserably failed to enact legislations to
implement these vital constitutional provisions that
determine who will effectively control the national
economy, Filipinos or foreigners. This Court cannot
allow such an absurd interpretation of the
Constitution.
This Court has held that the SEC has both regulatory
and adjudicative functions.69 Under its regulatory
functions, the SEC can be compelled by mandamus
to perform its statutory duty when it unlawfully
neglects to perform the same. Under its adjudicative
or quasi-judicial functions, the SEC can be also be
compelled by mandamus to hear and decide a
possible violation of any law it administers or
enforces when it is mandated by law to investigate as admitted by respondents and as stated in PLDTs
such violation. 2010 GIS that PLDT submitted to SEC.
Under Section 17(4)70 of the Corporation Code, the WHEREFORE, we PARTLY GRANT the petition
SEC has the regulatory function to reject or and rule that the term capital in Section 11, Article
disapprove the Articles of Incorporation of any XII of the 1987 Constitution refers only to shares of
corporation where the required percentage of stock entitled to vote in the election of directors, and
ownership of the capital stock to be owned by thus in the present case only to common shares, and
citizens of the Philippines has not been complied not to the total outstanding capital stock (common
with as required by existing laws or the and non-voting preferred shares). Respondent
Constitution. Thus, the SEC is the government Chairperson of the Securities and Exchange
agency tasked with the statutory duty to enforce the Commission is DIRECTED to apply this definition
nationality requirement prescribed in Section 11, of the term capital in determining the extent of
Article XII of the Constitution on the ownership of allowable foreign ownership in respondent
public utilities. This Court, in a petition for Philippine Long Distance Telephone Company, and
declaratory relief that is treated as a petition for if there is a violation of Section 11, Article XII of the
mandamus as in the present case, can direct the SEC Constitution, to impose the appropriate sanctions
to perform its statutory duty under the law, a duty under the law.
that the SEC has apparently unlawfully neglected to
do based on the 2010 GIS that respondent PLDT
submitted to the SEC.
SO ORDERED.
Under Section 5(m) of the Securities Regulation
Code,71 the SEC is vested with the power and
function to suspend or revoke, after proper notice
and hearing, the franchise or certificate of
registration of corporations, partnerships or
associations, upon any of the grounds provided by
law. The SEC is mandated under Section 5(d) of the
same Code with the power and function
to investigate x x x the activities of persons to
ensure compliance with the laws and regulations
that SEC administers or enforces. The GIS that all
corporations are required to submit to SEC annually
should put the SEC on guard against violations of the
nationality requirement prescribed in the
Constitution and existing laws. This Court can
compel the SEC, in a petition for declaratory relief
that is treated as a petition for mandamus as in the
present case, to hear and decide a possible violation
of Section 11, Article XII of the Constitution in view
of the ownership structure of PLDTs voting shares,
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 176579 October 9, 2012
HEIRS OF WILSON P. GAMBOA,* Petitioners,
vs.
FINANCE SECRETARYMARGARITO B.
TEVES, FINANCE UNDERSECRETARYJOHN
P. SEVILLA, AND COMMISSIONER RICARDO
ABCEDE OF THE PRESIDENTIAL
COMMISSION ON GOOD
GOVERNMENT(PCGG) IN THEIR
CAPACITIES AS CHAIR AND MEMBERS,
RESPECTIVELY, OF THE PRIVATIZATION
COUNCIL, CHAIRMAN ANTHONI SALIM OF
FIRST PACIFIC CO., LTD. IN HIS CAPACITY
AS DIRECTOR OF METRO PACIFIC ASSET
HOLDINGS INC., CHAIRMAN MANUEL V.
PANGILINAN OF PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY (PLDT)
IN HIS CAPACITY AS MANAGING DIRECTOR
OF FIRST PACIFIC CO., LTD., PRESIDENT
NAPOLEON L. NAZARENO OF PHILIPPINE
LONG DISTANCE TELEPHONE COMPANY,
CHAIR FE BARIN OF THE SECURITIES AND
EXCHANGE COMMISSION, and PRESIDENT
FRANCIS LIM OF THE PHILIPPINE STOCK
EXCHANGE, Respondents.
PABLITO V. SANIDAD and ARNO V.
SANIDAD, Petitioner-in-Intervention.
RESOLUTION
CARPIO, J.:
This resolves the motions for reconsideration of
the 28 June 2011 Decision filed by (1) the
Philippine Stock Exchange's (PSE)
President, 1 (2) Manuel V. Pangilinan
(Pangilinan),2 (3) Napoleon L. Nazareno
(Nazareno ),3 and ( 4) the Securities and
Exchange Commission (SEC)4 (collectively,
movants ).
The Office of the Solicitor General (OSG)
initially filed a motion for reconsideration on
behalfofthe SEC,5 assailing the 28 June 2011
Decision. However, it subsequently filed a
Consolidated Comment on behalf of the
State,6declaring expressly that it agrees with the
Court's definition of the term "capital" in Section
11, Article XII of the Constitution. During the
Oral Arguments on 26 June 2012, the OSG
reiterated its position consistent with the Court's
28 June 2011 Decision.
We deny the motions for
reconsideration.
I.
Far-reaching implications of the legal issue
justify
treatment of petition for declaratory relief as
one for mandamus.
As we emphatically stated in the 28 June 2011
Decision, the interpretation of the term "capital"
in Section 11, Article XII of the Constitution has
far-reaching implications to the national
economy. In fact, a resolution of this issue will
determine whether Filipinos are masters, or
second-class citizens, in their own country.
What is at stake here is whether Filipinos or
foreigners will have effective control of the
Philippine national economy. Indeed, if ever
there is a legal issue that has far-reaching
implications to the entire nation, and to future
generations of Filipinos, it is the threshold legal
issue presented in this case.
Contrary to Pangilinan’s narrow view, the
serious economic consequences resulting in the
interpretation of the term "capital" in Section 11,
Article XII of the Constitution undoubtedly
demand an immediate adjudication of this
issue. Simply put, the far-reaching
implications of this issue justify the
treatment of the petition as one for
mandamus.7
In Luzon Stevedoring Corp. v. Anti-Dummy
Board,8 the Court deemed it wise and expedient
to resolve the case although the petition for
declaratory relief could be outrightly dismissed
for being procedurally defective. There,
appellant admittedly had already committed a
breach of the Public Service Act in relation to
the Anti-Dummy Law since it had been
employing non- American aliens long before the
decision in a prior similar case. However, the
main issue in Luzon Stevedoring was of
transcendental importance, involving the
exercise or enjoyment of rights, franchises,
privileges, properties and businesses which
only Filipinos and qualified corporations could
exercise or enjoy under the Constitution and the
statutes. Moreover, the same issue could be
raised by appellant in an appropriate action.
Thus, in Luzon Stevedoring the Court deemed it
necessary to finally dispose of the case for the
guidance of all concerned, despite the apparent
procedural flaw in the petition.
The circumstances surrounding the present
case, such as the supposed procedural defect
of the petition and the pivotal legal issue
involved, resemble those in Luzon
Stevedoring. Consequently, in the interest of
substantial justice and faithful adherence to the
Constitution, we opted to resolve this case for
the guidance of the public and all concerned
parties.
 II.
No change of any long-standing rule;
thus, no redefinition of the term "capital."
Movants contend that the term "capital" in
Section 11, Article XII of the Constitution has
long been settled and defined to refer to the
total outstanding shares of stock, whether
voting or non-voting. In fact, movants claim that
the SEC, which is the administrative agency
tasked to enforce the 60-40 ownership
requirement in favor of Filipino citizens in the
Constitution and various statutes, has
consistently adopted this particular definition in
its numerous opinions. Movants point out that
with the 28 June 2011 Decision, the Court in
effect introduced a "new" definition or
"midstream redefinition"9 of the term "capital" in
Section 11, Article XII of the Constitution.
This is egregious error.
For more than 75 years since the 1935
Constitution, the Court has not interpreted or
defined the term "capital" found in various
economic provisions of the 1935, 1973 and
1987 Constitutions. There has never been a
judicial precedent interpreting the term "capital"
in the 1935, 1973 and 1987 Constitutions, until
now. Hence, it is patently wrong and utterly
baseless to claim that the Court in defining the
term "capital" in its 28 June 2011 Decision
modified, reversed, or set aside the purported
long-standing definition of the term "capital,"
which supposedly refers to the total outstanding
shares of stock, whether voting or non-voting.
To repeat, until the present case there has
never been a Court ruling categorically defining
the term "capital" found in the various economic
provisions of the 1935, 1973 and 1987
Philippine Constitutions.
The opinions of the SEC, as well as of the
Department of Justice (DOJ), on the definition
of the term "capital" as referring to both voting
and non-voting shares (combined total of
common and preferred shares) are, in the first
place, conflicting and inconsistent. There is no
basis whatsoever to the claim that the SEC and
the DOJ have consistently and uniformly
adopted a definition of the term "capital"
contrary to the definition that this Court adopted
in its 28 June 2011 Decision.
In DOJ Opinion No. 130, s. 1985,10 dated 7
October 1985, the scope of the term "capital" in
Section 9, Article XIV of the 1973 Constitution
was raised, that is, whether the term "capital"
includes "both preferred and common stocks."
The issue was raised in relation to a stock-swap
transaction between a Filipino and a Japanese
corporation, both stockholders of a domestic
corporation that owned lands in the Philippines.
Then Minister of Justice Estelito P. Mendoza
ruled that the resulting ownership structure of
the corporation would
be unconstitutional because 60% of the voting
stock would be owned by Japanese while
Filipinos would own only 40% of the voting
stock, although when the non-voting stock is
added, Filipinos would own 60% of the
combined voting and non-voting stock. This
ownership structure is remarkably similar to
the current ownership structure of PLDT.
Minister Mendoza ruled:
xxxx
Thus, the Filipino group still owns sixty (60%) of
the entire subscribed capital stock (common
and preferred) while the Japanese investors
control sixty percent (60%) of the common
(voting) shares.
It is your position that x x x since Section 9,
Article XIV of the Constitution uses the word
"capital," which is construed "to include
both preferred and common shares" and
"that where the law does not distinguish, the
courts shall not distinguish."
xxxx
In light of the foregoing jurisprudence, it is my
opinion that the stock-swap transaction in
question may not be constitutionally upheld.
While it may be ordinary corporate practice to
classify corporate shares into common voting
shares and preferred non-voting shares, any
arrangement which attempts to defeat the
constitutional purpose should be
eschewed. Thus, the resultant equity
arrangement which would place ownership
of 60%11 of the common (voting) shares in
the Japanese group, while retaining 60% of
the total percentage of common and
preferred shares in Filipino hands would
amount to circumvention of the principle of
control by Philippine stockholders that is
implicit in the 60% Philippine nationality
requirement in the Constitution. (Emphasis
supplied)
In short, Minister Mendoza categorically
rejected the theory that the term "capital" in
Section 9, Article XIV of the 1973 Constitution
includes "both preferred and common stocks"
treated as the same class of shares regardless
of differences in voting rights and privileges.
Minister Mendoza stressed that the 60-40
ownership requirement in favor of Filipino
citizens in the Constitution is not complied with
unless the corporation "satisfies the criterion
of beneficial ownership" and that in applying
the same "the primordial consideration is
situs of control."
On the other hand, in Opinion No. 23-10 dated
18 August 2010, addressed to Castillo Laman
Tan Pantaleon & San Jose, then SEC General
Counsel Vernette G. Umali-Paco applied
the Voting Control Test, that is, using only the
voting stock to determine whether a corporation
is a Philippine national. The Opinion states:
Applying the foregoing, particularly the
Control Test, MLRC is deemed as a Philippine
national because: (1) sixty percent (60%) of
its outstanding capital stock entitled to
vote is owned by a Philippine national, the
Trustee; and (2) at least sixty percent (60%) of
the ERF will accrue to the benefit of Philippine
nationals. Still pursuant to the Control Test,
MLRC’s investment in 60% of BFDC’s
outstanding capital stock entitled to
vote shall be deemed as of Philippine
nationality, thereby qualifying BFDC to own
private land.
Further, under, and for purposes of, the FIA,
MLRC and BFDC are both Philippine nationals,
considering that: (1) sixty percent (60%) of their
respective outstanding capital stock entitled
to vote is owned by a Philippine national (i.e.,
by the Trustee, in the case of MLRC; and by
MLRC, in the case of BFDC); and (2) at least
60% of their respective board of directors are
Filipino citizens. (Boldfacing and italicization
supplied)
Clearly, these DOJ and SEC opinions are
compatible with the Court’s interpretation of the
60-40 ownership requirement in favor of Filipino
citizens mandated by the Constitution for certain
economic activities. At the same time, these
opinions highlight the conflicting, contradictory,
and inconsistent positions taken by the DOJ
and the SEC on the definition of the term
"capital" found in the economic provisions of the
Constitution.
The opinions issued by SEC legal officers do
not have the force and effect of SEC rules and
regulations because only the SEC en banc can
adopt rules and regulations. As expressly
provided in Section 4.6 of the Securities
Regulation Code,12 the SEC cannot delegate to
any of its individual Commissioner or staff the
power to adopt any rule or regulation.
Further, under Section 5.1 of the same Code,
it is the SEC as a collegial body, and not any
of its legal officers, that is empowered to
issue opinions and approve rules and
regulations. Thus:
4.6. The Commission may, for purposes of
efficiency, delegate any of its functions to any
department or office of the Commission, an
individual Commissioner or staff member of the
Commission except its review or appellate
authority and its power to adopt, alter and
supplement any rule or regulation.
The Commission may review upon its own
initiative or upon the petition of any interested
party any action of any department or office,
individual Commissioner, or staff member of the
Commission.
SEC. 5. Powers and Functions of the
Commission.- 5.1. The Commission shall act
with transparency and shall have the powers
and functions provided by this Code,
Presidential Decree No. 902-A, the Corporation
Code, the Investment Houses Law, the
Financing Company Act and other existing laws.
Pursuant thereto the Commission shall have,
among others, the following powers and
functions:
xxxx
(g) Prepare, approve, amend or repeal rules,
regulations and orders, and
issue opinions and provide guidance on and
supervise compliance with such rules,
regulations and orders;
x x x x (Emphasis supplied)
Thus, the act of the individual Commissioners or
legal officers of the SEC in issuing opinions that
have the effect of SEC rules or regulations
is ultra vires. Under Sections 4.6 and 5.1(g) of
the Code, only the SEC en banc can "issue
opinions" that have the force and effect of rules
or regulations. Section 4.6 of the Code bars the
SEC en banc from delegating to any individual
Commissioner or staff the power to adopt rules
or regulations. In short, any opinion of
individual Commissioners or SEC legal
officers does not constitute a rule or
regulation of the SEC.
The SEC admits during the Oral Arguments that
only the SEC en banc, and not any of its
individual commissioners or legal staff, is
empowered to issue opinions which have the
same binding effect as SEC rules and
regulations, thus:
JUSTICE CARPIO:
So, under the law, it is the
Commission En Banc that
can issue an
SEC Opinion, correct?
COMMISSIONER GAITE:13
That’s correct, Your Honor.
JUSTICE CARPIO:
 Can the Commission En Banc
delegate this function to an
SEC officer?
COMMISSIONER GAITE:
Yes, Your Honor, we have
delegated it to the General
Counsel.
JUSTICE CARPIO:
It can be delegated. What
cannot be delegated by the
Commission En Banc to a
commissioner or an individual
employee of the
Commission?
COMMISSIONER GAITE:
Novel opinions that [have] to
be decided by the En Banc...
JUSTICE CARPIO:
What cannot be delegated,
among others, is the power to
adopt or amend rules and
regulations, correct?
COMMISSIONER GAITE:
That’s correct, Your Honor.
JUSTICE CARPIO:
So, you combine the two
(2), the SEC officer, if
delegated that power, can
issue an opinion but that
opinion does not constitute
a rule or regulation,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, all of these opinions
that you mentioned they are
not rules and regulations,
correct?
COMMISSIONER GAITE:
They are not rules and
regulations.
JUSTICE CARPIO:
If they are not rules and
regulations, they apply only to
that particular situation and
will not constitute a
precedent, correct?
COMMISSIONER GAITE:
Yes, Your Honor.14 (Emphasis
supplied)
Significantly, the SEC en banc, which is the
collegial body statutorily empowered to issue
rules and opinions on behalf of the SEC, has
adopted even the Grandfather Rule in
determining compliance with the 60-40
ownership requirement in favor of Filipino
citizens mandated by the Constitution for certain
economic activities. This prevailing SEC ruling,
which the SEC correctly adopted to thwart any
circumvention of the required Filipino
"ownership and control," is laid down in the 25
March 2010 SEC en banc ruling in Redmont
Consolidated Mines, Corp. v. McArthur Mining,
Inc., et al.,15 to wit:
The avowed purpose of the Constitution is to
place in the hands of Filipinos the exploitation of
our natural resources. Necessarily, therefore,
the Rule interpreting the constitutional
provision should not diminish that right
through the legal fiction of corporate
ownership and control. But the constitutional
provision, as interpreted and practiced via the
1967 SEC Rules, has favored foreigners
contrary to the command of the
Constitution. Hence, the Grandfather Rule
must be applied to accurately determine the
actual participation, both direct and indirect,
of foreigners in a corporation engaged in a
nationalized activity or business.
Compliance with the constitutional limitation(s)
on engaging in nationalized activities must be
determined by ascertaining if 60% of the
investing corporation’s outstanding capital stock
is owned by "Filipino citizens", or as interpreted,
by natural or individual Filipino citizens. If such
investing corporation is in turn owned to some
extent by another investing corporation, the
same process must be observed. One must not
stop until the citizenships of the individual or
natural stockholders of layer after layer of
investing corporations have been established,
the very essence of the Grandfather Rule.
Lastly, it was the intent of the framers of the
1987 Constitution to adopt the Grandfather
Rule. In one of the discussions on what is now
Article XII of the present Constitution, the
framers made the following exchange:
MR. NOLLEDO. In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-
40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always
faced with the question: ‘Where do we base the
equity requirement, is it on the authorized
capital stock, on the subscribed capital stock, or
on the paid-up capital stock of a corporation’?
Will the Committee please enlighten me on
this?
MR. VILLEGAS. We have just had a long
discussion with the members of the team from
the UP Law Center who provided us a draft.
The phrase that is contained here which we
adopted from the UP draft is ‘60 percent of
voting stock.’
MR. NOLLEDO. That must be based on the
subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall
be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you. With respect to an
investment by one corporation in another
corporation, say, a corporation with 60-40
percent equity invests in another corporation
which is permitted by the Corporation Code,
does the Committee adopt the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding
of the Committee.
MR. NOLLEDO. Therefore, we need additional
Filipino capital?
MR. VILLEGAS. Yes. (Boldfacing and
underscoring supplied; italicization in the
original)
This SEC en banc ruling conforms to our 28
June 2011 Decision that the 60-40 ownership
requirement in favor of Filipino citizens in the
Constitution to engage in certain economic
activities applies not only to voting control of the
corporation, but also to the beneficial
ownership of the corporation. Thus, in our 28
June 2011 Decision we stated:
Mere legal title is insufficient to meet the 60
percent Filipinoowned "capital" required in the
Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock,
coupled with 60 percent of the voting rights,
is required. The legal and beneficial ownership
of 60 percent of the outstanding capital stock
must rest in the hands of Filipino nationals in
accordance with the constitutional mandate.
Otherwise, the corporation is "considered as
non-Philippine national[s]." (Emphasis supplied)
Both the Voting Control Test and the Beneficial
Ownership Test must be applied to determine
whether a corporation is a "Philippine national."
The interpretation by legal officers of the SEC of
the term "capital," embodied in various opinions
which respondents relied upon, is merely
preliminary and an opinion only of such officers.
To repeat, any such opinion does not constitute
an SEC rule or regulation. In fact, many of these
opinions contain a disclaimer which expressly
states: "x x x the foregoing opinion is based
solely on facts disclosed in your query and
relevant only to the particular issue raised
therein and shall not be used in the nature of
a standing rule binding upon the
Commission in other cases whether of
similar or dissimilar circumstances."16 Thus,
the opinions clearly make a caveat that they do
not constitute binding precedents on any one,
not even on the SEC itself.
Likewise, the opinions of the SEC en banc, as
well as of the DOJ, interpreting the law are
neither conclusive nor controlling and thus, do
not bind the Court. It is hornbook doctrine that
any interpretation of the law that administrative
or quasi-judicial agencies make is only
preliminary, never conclusive on the Court. The
power to make a final interpretation of the law,
in this case the term "capital" in Section 11,
Article XII of the 1987 Constitution, lies with this
Court, not with any other government entity.
In his motion for reconsideration, the PSE
President cites the cases of National
Telecommunications Commission v. Court of
Appeals17 and Philippine Long Distance
Telephone Company v. National
Telecommunications Commission18 in arguing
that the Court has already defined the term
"capital" in Section 11, Article XII of the 1987
Constitution.19
The PSE President is grossly mistaken. In both
cases of National Telecommunications v. Court
of Appeals20 and Philippine Long Distance
Telephone Company v. National
Telecommunications Commission,21 the Court
did not define the term "capital" as found in
Section 11, Article XII of the 1987
Constitution. In fact, these two cases never
mentioned, discussed or cited Section 11,
Article XII of the Constitution or any of its
economic provisions, and thus cannot serve
as precedent in the interpretation of Section
11, Article XII of the Constitution. These two
cases dealt solely with the determination of the
correct regulatory fees under Section 40(e) and
(f) of the Public Service Act, to wit:
(e) For annual reimbursement of the expenses
incurred by the Commission in the supervision
of other public services and/or in the regulation
or fixing of their rates, twenty centavos for each
one hundred pesos or fraction thereof, of
the capital stock subscribed or paid, or if no
shares have been issued, of the capital
invested, or of the property and equipment
whichever is higher.
(f) For the issue or increase of capital stock,
twenty centavos for each one hundred pesos or
fraction thereof, of the increased capital.
(Emphasis supplied)
The Court’s interpretation in these two cases of
the terms "capital stock subscribed or paid,"
"capital stock" and "capital" does not pertain to,
and cannot control, the definition of the term
"capital" as used in Section 11, Article XII of the
Constitution, or any of the economic provisions
of the Constitution where the term "capital" is
found. The definition of the term "capital" found
in the Constitution must not be taken out of
context. A careful reading of these two cases
reveals that the terms "capital stock subscribed
or paid," "capital stock" and "capital" were
defined solely to determine the basis for
computing the supervision and regulation fees
under Section 40(e) and (f) of the Public Service
Act.
III.
Filipinization of Public Utilities
The Preamble of the 1987 Constitution, as the
prologue of the supreme law of the land,
embodies the ideals that the Constitution
intends to achieve.22 The Preamble reads:
We, the sovereign Filipino people, imploring the
aid of Almighty God, in order to build a just and
humane society, and establish a Government
that shall embody our ideals and aspirations,
promote the common good, conserve and
develop our patrimony, and secure to
ourselves and our posterity, the blessings of
independence and democracy under the rule of
law and a regime of truth, justice, freedom, love,
equality, and peace, do ordain and promulgate
this Constitution. (Emphasis supplied)
Consistent with these ideals, Section 19, Article
II of the 1987 Constitution declares as State
policy the development of a national economy
"effectively controlled" by Filipinos:
Section 19. The State shall develop a self-
reliant and independent national
economy effectively controlled by Filipinos.
Fortifying the State policy of a Filipino-controlled
economy, the Constitution decrees:
Section 10. The Congress shall, upon
recommendation of the economic and planning
agency, when the national interest dictates,
reserve to citizens of the Philippines or to
corporations or associations at least sixty per
centum of whose capital is owned by such
citizens, or such higher percentage as
Congress may prescribe, certain areas of
investments. The Congress shall enact
measures that will encourage the formation and
operation of enterprises whose capital is wholly
owned by Filipinos.
In the grant of rights, privileges, and
concessions covering the national economy and
patrimony, the State shall give preference to
qualified Filipinos.
The State shall regulate and exercise authority
over foreign investments within its national
jurisdiction and in accordance with its national
goals and priorities.23
Under Section 10, Article XII of the 1987
Constitution, Congress may "reserve to citizens
of the Philippines or to corporations or
associations at least sixty per centum of whose
capital is owned by such citizens, or such higher
percentage as Congress may prescribe, certain
areas of investments." Thus, in numerous laws
Congress has reserved certain areas of
investments to Filipino citizens or to
corporations at least sixty percent of the
"capital" of which is owned by Filipino citizens.
Some of these laws are: (1) Regulation of
Award of Government Contracts or R.A. No.
5183; (2) Philippine Inventors Incentives Act or
R.A. No. 3850; (3) Magna Carta for Micro, Small
and Medium Enterprises or R.A. No. 6977; (4)
Philippine Overseas Shipping Development Act
or R.A. No. 7471; (5) Domestic Shipping
Development Act of 2004 or R.A. No. 9295; (6)
Philippine Technology Transfer Act of 2009 or
R.A. No. 10055; and (7) Ship Mortgage Decree
or P.D. No. 1521.
With respect to public utilities, the 1987
Constitution specifically ordains:
Section 11. No franchise, certificate, or any
other form of authorization for the operation
of a public utility shall be granted except to
citizens of the Philippines or to corporations
or associations organized under the laws of
the Philippines, at least sixty per centum of
whose capital is owned by such citizens; nor
shall such franchise, certificate, or authorization
be exclusive in character or for a longer period
than fifty years. Neither shall any such franchise
or right be granted except under the condition
that it shall be subject to amendment, alteration,
or repeal by the Congress when the common
good so requires. The State shall encourage
equity participation in public utilities by the
general public. The participation of foreign
investors in the governing body of any public
utility enterprise shall be limited to their
proportionate share in its capital, and all the
executive and managing officers of such
corporation or association must be citizens of
the Philippines. (Emphasis supplied)
This provision, which mandates the
Filipinization of public utilities, requires that any
form of authorization for the operation of public
utilities shall be granted only to "citizens of the
Philippines or to corporations or associations
organized under the laws of the Philippines at
least sixty per centum of whose capital is owned
by such citizens." "The provision is [an
express] recognition of the sensitive and
vital position of public utilities both in the
national economy and for national
security."24
The 1987 Constitution reserves the ownership
and operation of public utilities exclusively to (1)
Filipino citizens, or (2) corporations or
associations at least 60 percent of whose
"capital" is owned by Filipino citizens. Hence, in
the case of individuals, only Filipino citizens can
validly own and operate a public utility. In the
case of corporations or associations, at least 60
percent of their "capital" must be owned by
Filipino citizens. In other words, under
Section 11, Article XII of the 1987
Constitution, to own and operate a public
utility a corporation’s capital must at least
be 60 percent owned by Philippine nationals.
IV.
Definition of "Philippine National"
Pursuant to the express mandate of Section 11,
Article XII of the 1987 Constitution, Congress
enacted Republic Act No. 7042 or the Foreign
Investments Act of 1991 (FIA), as amended,
which defined a "Philippine national" as
follows:
SEC. 3. Definitions. - As used in this Act:
a. The term "Philippine national" shall mean a
citizen of the Philippines; or a domestic
partnership or association wholly owned by
citizens of the Philippines; or a corporation
organized under the laws of the Philippines
of which at least sixty percent (60%) of the
capital stock outstanding and entitled to
vote is owned and held by citizens of the
Philippines; or a corporation organized abroad
and registered as doing business in the
Philippines under the Corporation Code of
which one hundred percent (100%) of the
capital stock outstanding and entitled to vote is
wholly owned by Filipinos or a trustee of funds
for pension or other employee retirement or
separation benefits, where the trustee is a
Philippine national and at least sixty percent
(60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That where a
corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at
least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both
corporations must be owned and held by
citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of
Directors of each of both corporations must be
citizens of the Philippines, in order that the
corporation, shall be considered a "Philippine
national." (Boldfacing, italicization and
underscoring supplied)
Thus, the FIA clearly and unequivocally defines
a "Philippine national" as a Philippine citizen,
or a domestic corporation at least "60% of the
capital stock outstanding and entitled to
vote" is owned by Philippine citizens.
The definition of a "Philippine national" in the
FIA reiterated the meaning of such term as
provided in its predecessor statute, Executive
Order No. 226 or the Omnibus Investments
Code of 1987,25 which was issued by then
President Corazon C. Aquino. Article 15 of this
Code states:
Article 15. "Philippine national" shall mean a
citizen of the Philippines or a diplomatic
partnership or association wholly-owned by
citizens of the Philippines; or a corporation
organized under the laws of the Philippines
of which at least sixty per cent (60%) of the
capital stock outstanding and entitled to
vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or
other employee retirement or separation
benefits, where the trustee is a Philippine
national and at least sixty per cent (60%) of the
fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation
and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent
(60%) of the capital stock outstanding and
entitled to vote of both corporations must be
owned and held by the citizens of the
Philippines and at least sixty per cent (60%) of
the members of the Board of Directors of both
corporations must be citizens of the Philippines
in order that the corporation shall be considered
a Philippine national. (Boldfacing, italicization
and underscoring supplied)
Under Article 48(3)26 of the Omnibus
Investments Code of 1987, "no corporation x x x
which is not a ‘Philippine national’ x x x shall do
business
x x x in the Philippines x x x without first
securing from the Board of Investments a
written certificate to the effect that such
business or economic activity x x x
would not conflict with the Constitution or laws
of the Philippines."27 Thus, a "non-Philippine
national" cannot own and operate a reserved
economic activity like a public utility. This
means, of course, that only a "Philippine
national" can own and operate a public utility.
In turn, the definition of a "Philippine national"
under Article 15 of the Omnibus Investments
Code of 1987 was a reiteration of the meaning
of such term as provided in Article 14 of
the Omnibus Investments Code of 1981,28 to
wit:
Article 14. "Philippine national" shall mean a
citizen of the Philippines; or a domestic
partnership or association wholly owned by
citizens of the Philippines; or a corporation
organized under the laws of the Philippines
of which at least sixty per cent (60%) of the
capital stock outstanding and entitled to
vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or
other employee retirement or separation
benefits, where the trustee is a Philippine
national and at least sixty per cent (60%) of the
fund will accrue to the benefit of Philippine
nationals: Provided, That where a corporation
and its non-Filipino stockholders own stock in a
registered enterprise, at least sixty per cent
(60%) of the capital stock outstanding and
entitled to vote of both corporations must be
owned and held by the citizens of the
Philippines and at least sixty per cent (60%) of
the members of the Board of Directors of both
corporations must be citizens of the Philippines
in order that the corporation shall be considered
a Philippine national. (Boldfacing, italicization
and underscoring supplied)
Under Article 69(3) of the Omnibus Investments
Code of 1981, "no corporation x x x which is not
a ‘Philippine national’ x x x shall do business x x
x in the Philippines x x x without first securing a
written certificate from the Board of Investments
to the effect that such business or economic
activity x x x would not conflict with the
Constitution or laws of the Philippines."29 Thus,
a "non-Philippine national" cannot own and
operate a reserved economic activity like a
public utility. Again, this means that only a
"Philippine national" can own and operate a
public utility.
Prior to the Omnibus Investments Code of
1981, Republic Act No. 518630 or
the Investment Incentives Act, which took effect
on 16 September 1967, contained a similar
definition of a "Philippine national," to wit:
(f) "Philippine National" shall mean a citizen of
the Philippines; or a partnership or association
wholly owned by citizens of the Philippines; or a
corporation organized under the laws of the
Philippines of which at least sixty per cent of
the capital stock outstanding and entitled to
vote is owned and held by citizens of the
Philippines; or a trustee of funds for pension or
other employee retirement or separation
benefits, where the trustee is a Philippine
National and at least sixty per cent of the fund
will accrue to the benefit of Philippine Nationals:
Provided, That where a corporation and its non-
Filipino stockholders own stock in a registered
enterprise, at least sixty per cent of the capital
stock outstanding and entitled to vote of both
corporations must be owned and held by the
citizens of the Philippines and at least sixty per
cent of the members of the Board of Directors of
both corporations must be citizens of the
Philippines in order that the corporation shall be
considered a Philippine National. (Boldfacing,
italicization and underscoring supplied)
Under Section 3 of Republic Act No. 5455 or
the Foreign Business Regulations Act, which
took effect on 30 September 1968, if the
investment in a domestic enterprise by non-
Philippine nationals exceeds 30% of its
outstanding capital stock, such enterprise must
obtain prior approval from the Board of
Investments before accepting such investment.
Such approval shall not be granted if the
investment "would conflict with existing
constitutional provisions and laws regulating the
degree of required ownership by Philippine
nationals in the enterprise."31 A "non-Philippine
national" cannot own and operate a reserved
economic activity like a public utility. Again, this
means that only a "Philippine national" can own
and operate a public utility.
The FIA, like all its predecessor statutes,
clearly defines a "Philippine national" as a
Filipino citizen, or a domestic corporation "at
least sixty percent (60%) of the capital stock
outstanding and entitled to vote" is owned by
Filipino citizens. A domestic corporation is a
"Philippine national" only if at least 60% of
its voting stock is owned by Filipino citizens.
This definition of a "Philippine national" is
crucial in the present case because the FIA
reiterates and clarifies Section 11, Article XII of
the 1987 Constitution, which limits the
ownership and operation of public utilities to
Filipino citizens or to corporations or
associations at least 60% Filipino-owned.
The FIA is the basic law governing foreign
investments in the Philippines, irrespective of
the nature of business and area of investment.
The FIA spells out the procedures by which
non-Philippine nationals can invest in the
Philippines. Among the key features of this law
is the concept of a negative list or the Foreign
Investments Negative List.32 Section 8 of the
law states:
SEC. 8. List of Investment Areas Reserved to
Philippine Nationals [Foreign Investment
Negative List]. - The Foreign Investment
Negative List shall have two 2 component
lists: A and B:
a. List A shall enumerate the areas of
activities reserved to Philippine nationals by
mandate of the Constitution and specific
laws.
b. List B shall contain the areas of activities and
enterprises regulated pursuant to law:
1. which are defense-related activities, requiring
prior clearance and authorization from the
Department of National Defense [DND] to
engage in such activity, such as the
manufacture, repair, storage and/or distribution
of firearms, ammunition, lethal weapons,
military ordinance, explosives, pyrotechnics and
similar materials; unless such manufacturing or
repair activity is specifically authorized, with a
substantial export component, to a non-
Philippine national by the Secretary of National
Defense; or
2. which have implications on public health and
morals, such as the manufacture and
distribution of dangerous drugs; all forms of
gambling; nightclubs, bars, beer houses, dance
halls, sauna and steam bathhouses and
massage clinics. (Boldfacing, underscoring and
italicization supplied)
Section 8 of the FIA enumerates the investment
areas "reserved to Philippine
nationals." Foreign Investment Negative List
A consists of "areas of activities reserved to
Philippine nationals by mandate of the
Constitution and specific laws," where
foreign equity participation in any enterprise
shall be limited to the maximum percentage
expressly prescribed by the Constitution
and other specific laws. In short, to own and
operate a public utility in the Philippines one
must be a "Philippine national" as defined in
the FIA. The FIA is abundant notice to
foreign investors to what extent they can operate public utilities in the
invest in public utilities in the Philippines. Philippines. The following exchange during the
Oral Arguments is revealing:
To repeat, among the areas of investment
covered by the Foreign Investment Negative JUSTICE CARPIO:
List A is the ownership and operation of public
utilities, which the Constitution expressly Counsel, I have some
reserves to Filipino citizens and to corporations questions. You are aware of
at least 60% owned by Filipino citizens. In other the Foreign Investments Act
words, Negative List A of the FIA reserves of 1991, x x x? And the FIA of
the ownership and operation of public 1991 took effect in 1991,
utilities only to "Philippine nationals," correct? That’s over twenty
defined in Section 3(a) of the FIA as "(1) a (20) years ago, correct?
citizen of the Philippines; x x x or (3) a
corporation organized under the laws of the
Philippines of which at least sixty percent COMMISSIONER GAITE:
(60%) of the capital stock outstanding and
entitled to vote is owned and held by Correct, Your Honor.
citizens of the Philippines; or (4) a corporation
organized abroad and registered as doing JUSTICE CARPIO:
business in the Philippines under the
Corporation Code of which one hundred percent
(100%) of the capital stock outstanding and And Section 8 of the Foreign
entitled to vote is wholly owned by Filipinos or a Investments Act of 1991
trustee of funds for pension or other employee states that []only Philippine
retirement or separation benefits, where the nationals can own and
trustee is a Philippine national and at least sixty operate public utilities[],
percent (60%) of the fund will accrue to the correct?
benefit of Philippine nationals."
COMMISSIONER GAITE:
Clearly, from the effectivity of the Investment
Incentives Act of 1967 to the adoption of the Yes, Your Honor.
Omnibus Investments Code of 1981, to the
enactment of the Omnibus Investments Code of
JUSTICE CARPIO:
1987, and to the passage of the present Foreign
Investments Act of 1991, or for more than four
decades, the statutory definition of the term And the same Foreign
"Philippine national" has been uniform and Investments Act of 1991
consistent: it means a Filipino citizen, or a defines a "Philippine national"
domestic corporation at least 60% of either as a citizen of the
the voting stock is owned by Filipinos. Philippines, or if it is a
Likewise, these same statutes have corporation at least sixty
uniformly and consistently required that percent (60%) of the voting
only "Philippine nationals" could own and
 stock is owned by citizens of
the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And, you are also aware that
under the predecessor law of
the Foreign Investments Act
of 1991, the Omnibus
Investments Act of 1987, the
same provisions apply: x x x
only Philippine nationals can
own and operate a public
utility and the Philippine
national, if it is a corporation,
x x x sixty percent (60%) of
the capital stock of that
corporation must be owned
by citizens of the Philippines,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to the
Omnibus Investments Act of
1987, under the Omnibus
Investments Act of 1981, the
same rules apply: x x x only a
Philippine national can own
and operate a public utility
and a Philippine national, if it
is a corporation, sixty percent
(60%) of its x x x voting stock,
must be owned by citizens of
the Philippines, correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
And even prior to that, under
[the]1967 Investments
Incentives Act and the
Foreign Company Act of
1968, the same rules applied,
correct?
COMMISSIONER GAITE:
Correct, Your Honor.
JUSTICE CARPIO:
So, for the last four (4)
decades, x x x, the law has
been very consistent – only
a Philippine national can
own and operate a public
utility, and a Philippine
national, if it is a
corporation, x x x at least
sixty percent (60%) of the
voting stock must be
owned by citizens of the
Philippines, correct?
COMMISSIONER GAITE:
Correct, Your
Honor.33 (Emphasis supplied)
Government agencies like the SEC cannot
simply ignore Sections 3(a) and 8 of the FIA
which categorically prescribe that certain
economic activities, like the ownership and
operation of public utilities, are reserved to
corporations "at least sixty percent (60%) of the
capital stock outstanding and entitled to
vote is owned and held by citizens of the
Philippines." Foreign Investment Negative List A
refers to "activities reserved to Philippine
nationals by mandate of the Constitution and
specific laws." The FIA is the basic statute
regulating foreign investments in the
Philippines. Government agencies tasked with
regulating or monitoring foreign investments, as
well as counsels of foreign investors, should
start with the FIA in determining to what extent
a particular foreign investment is allowed in the
Philippines. Foreign investors and their
counsels who ignore the FIA do so at their own
peril. Foreign investors and their counsels who
rely on opinions of SEC legal officers that
obviously contradict the FIA do so also at their
own peril.
Occasional opinions of SEC legal officers that
obviously contradict the FIA should immediately
raise a red flag. There are already numerous
opinions of SEC legal officers that cite the
definition of a "Philippine national" in Section
3(a) of the FIA in determining whether a
particular corporation is qualified to own and
operate a nationalized or partially nationalized
business in the Philippines. This shows that
SEC legal officers are not only aware of, but
also rely on and invoke, the provisions of the
FIA in ascertaining the eligibility of a corporation
to engage in partially nationalized industries.
The following are some of such opinions:
1. Opinion of 23 March 1993,
addressed to Mr. Francis F. How;
 2. Opinion of 14 April 1993, addressed
to Director Angeles T. Wong of the
Philippine Overseas Employment
Administration;
3. Opinion of 23 November 1993,
addressed to Messrs. Dominador
Almeda and Renato S. Calma;
4. Opinion of 7 December 1993,
addressed to Roco Bunag Kapunan
Migallos & Jardeleza;
5. SEC Opinion No. 49-04, addressed
to Romulo Mabanta Buenaventura
Sayoc & De Los Angeles;
6. SEC-OGC Opinion No. 17-07,
addressed to Mr. Reynaldo G. David;
and
7. SEC-OGC Opinion No. 03-08,
addressed to Attys. Ruby Rose J. Yusi
and Rudyard S. Arbolado.
The SEC legal officers’ occasional but blatant
disregard of the definition of the term "Philippine
national" in the FIA signifies their lack of
integrity and competence in resolving issues on
the 60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of the
Constitution.
The PSE President argues that the term
"Philippine national" defined in the FIA should
be limited and interpreted to refer to
corporations seeking to avail of tax and fiscal
incentives under investment incentives laws and
cannot be equated with the term "capital" in
Section 11, Article XII of the 1987 Constitution.
Pangilinan similarly contends that the FIA and
its predecessor statutes do not apply to
"companies which have not registered and
obtained special incentives under the schemes
established by those laws."
Both are desperately grasping at straws. The
FIA does not grant tax or fiscal incentives to any
enterprise. Tax and fiscal incentives to
investments are granted separately under the
Omnibus Investments Code of 1987, not under
the FIA. In fact, the FIA expressly repealed
Articles 44 to 56 of Book II of the Omnibus
Investments Code of 1987, which articles
previously regulated foreign investments in
nationalized or partially nationalized industries.
The FIA is the applicable law regulating foreign
investments in nationalized or partially
nationalized industries. There is nothing in the
FIA, or even in the Omnibus Investments Code
of 1987 or its predecessor statutes, that states,
expressly or impliedly, that the FIA or its
predecessor statutes do not apply to enterprises
not availing of tax and fiscal incentives under
the Code. The FIA and its predecessor statutes
apply to investments in all domestic enterprises,
whether or not such enterprises enjoy tax and
fiscal incentives under the Omnibus
Investments Code of 1987 or its predecessor
statutes. The reason is quite obvious – mere
non-availment of tax and fiscal incentives by
a non-Philippine national cannot exempt it
from Section 11, Article XII of the
Constitution regulating foreign investments
in public utilities. In fact, the Board of
Investments’ Primer on Investment Policies in
the Philippines,34 which is given out to foreign
investors, provides:
PART III. FOREIGN INVESTMENTS WITHOUT
INCENTIVES
Investors who do not seek incentives and/or
whose chosen activities do not qualify for
incentives, (i.e., the activity is not listed in the
IPP, and they are not exporting at least 70% of
their production) may go ahead and make the
investments without seeking incentives. They
only have to be guided by the Foreign
Investments Negative List (FINL).
The FINL clearly defines investment areas
requiring at least 60% Filipino ownership. All
other areas outside of this list are fully open to
foreign investors. (Emphasis supplied)
V.
Right to elect directors, coupled with
beneficial ownership,
translates to effective control.
The 28 June 2011 Decision declares that the 60
percent Filipino ownership required by the
Constitution to engage in certain economic
activities applies not only to voting control of the
corporation, but also to the beneficial
ownership of the corporation. To repeat, we
held:
Mere legal title is insufficient to meet the 60
percent Filipino-owned "capital" required in the
Constitution. Full beneficial ownership of 60
percent of the outstanding capital stock,
coupled with 60 percent of the voting rights,
is required. The legal and beneficial ownership
of 60 percent of the outstanding capital stock
must rest in the hands of Filipino nationals in
accordance with the constitutional mandate.
Otherwise, the corporation is "considered as
non-Philippine national[s]." (Emphasis supplied)
This is consistent with Section 3 of the FIA
which provides that where 100% of the capital
stock is held by "a trustee of funds for pension
or other employee retirement or separation
benefits," the trustee is a Philippine national if
"at least sixty percent (60%) of the fund will
accrue to the benefit of Philippine nationals."
Likewise, Section 1(b) of the Implementing
Rules of the FIA provides that "for stocks to be
deemed owned and held by Philippine citizens
or Philippine nationals, mere legal title is not
enough to meet the required Filipino equity. Full
beneficial ownership of the stocks, coupled
with appropriate voting rights, is essential."
Since the constitutional requirement of at least
60 percent Filipino ownership applies not only to
voting control of the corporation but also to the
beneficial ownership of the corporation, it is
therefore imperative that such requirement
apply uniformly and across the board to all
classes of shares, regardless of nomenclature
and category, comprising the capital of a
corporation. Under the Corporation Code,
capital stock35 consists of all classes of shares
issued to stockholders, that is, common shares
as well as preferred shares, which may have
different rights, privileges or restrictions as
stated in the articles of incorporation.36
The Corporation Code allows denial of the right
to vote to preferred and redeemable shares, but
disallows denial of the right to vote in specific
corporate matters. Thus, common shares have
the right to vote in the election of directors,
while preferred shares may be denied such
right. Nonetheless, preferred shares, even if
denied the right to vote in the election of
directors, are entitled to vote on the following
corporate matters: (1) amendment of articles of
incorporation; (2) increase and decrease of
capital stock; (3) incurring, creating or
increasing bonded indebtedness; (4) sale,
lease, mortgage or other disposition of
substantially all corporate assets; (5) investment
of funds in another business or corporation or
for a purpose other than the primary purpose for
which the corporation was organized; (6)
adoption, amendment and repeal of by-laws; (7)
merger and consolidation; and (8) dissolution of
corporation.37
Since a specific class of shares may have rights
and privileges or restrictions different from the
rest of the shares in a corporation, the 60-40
ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the
Constitution must apply not only to shares with
voting rights but also to shares without voting
rights. Preferred shares, denied the right to vote
in the election of directors, are anyway still
entitled to vote on the eight specific corporate
matters mentioned above. Thus, if a
corporation, engaged in a partially
nationalized industry, issues a mixture of
common and preferred non-voting shares, at
least 60 percent of the common shares and
at least 60 percent of the preferred non-
voting shares must be owned by
Filipinos. Of course, if a corporation issues
only a single class of shares, at least 60 percent
of such shares must necessarily be owned by
Filipinos. In short, the 60-40 ownership
requirement in favor of Filipino citizens must
apply separately to each class of shares,
whether common, preferred non-voting,
preferred voting or any other class of
shares. This uniform application of the 60-40
ownership requirement in favor of Filipino
citizens clearly breathes life to the constitutional
command that the ownership and operation of
public utilities shall be reserved exclusively to
corporations at least 60 percent of whose
capital is Filipino-owned. Applying uniformly the
60-40 ownership requirement in favor of Filipino
citizens to each class of shares, regardless of
differences in voting rights, privileges and
restrictions, guarantees effective Filipino control
of public utilities, as mandated by the
Constitution.
Moreover, such uniform application to each
class of shares insures that the "controlling
interest" in public utilities always lies in the
hands of Filipino citizens. This addresses and
extinguishes Pangilinan’s worry that foreigners,
owning most of the non-voting shares, will
exercise greater control over fundamental
corporate matters requiring two-thirds or
majority vote of all shareholders.
VI.
Intent of the framers of the Constitution
While Justice Velasco quoted in his Dissenting
Opinion38 a portion of the deliberations of the
Constitutional Commission to support his claim
that the term "capital" refers to the total
outstanding shares of stock, whether voting or
non-voting, the following excerpts of the
deliberations reveal otherwise. It is clear from
the following exchange that the term "capital"
refers to controlling interest of a corporation,
thus:
MR. NOLLEDO. In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-
40 in Section 9 and 2/3-1/3 in Section 15.
MR. VILLEGAS. That is right.
MR. NOLLEDO. In teaching law, we are always
faced with this question: "Where do we base the
equity requirement, is it on the authorized
capital stock, on the subscribed capital stock, or
on the paid-up capital stock of a corporation"?
Will the Committee please enlighten me on
this?
MR. VILLEGAS. We have just had a long
discussion with the members of the team from
the UP Law Center who provided us a
draft. The phrase that is contained here
which we adopted from the UP draft is "60
percent of voting stock."
MR. NOLLEDO. That must be based on the
subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall
be entitled to vote.
MR. VILLEGAS. That is right.
MR. NOLLEDO. Thank you.
With respect to an investment by one
corporation in another corporation, say, a
corporation with 60-40 percent equity invests in
another corporation which is permitted by the
Corporation Code, does the Committee adopt
the grandfather rule?
MR. VILLEGAS. Yes, that is the understanding
of the Committee.
MR. NOLLEDO. Therefore, we need additional
Filipino capital?
MR. VILLEGAS. Yes.39
xxxx
MR. AZCUNA. May I be clarified as to that
portion that was accepted by the Committee.
MR. VILLEGAS. The portion accepted by the
Committee is the deletion of the phrase "voting
stock or controlling interest."
MR. AZCUNA. Hence, without the Davide
amendment, the committee report would read:
"corporations or associations at least sixty
percent of whose CAPITAL is owned by such
citizens."
MR. VILLEGAS. Yes.
MR. AZCUNA. So if the Davide amendment is
lost, we are stuck with 60 percent of the capital
to be owned by citizens.
MR. VILLEGAS. That is right.
MR. AZCUNA. But the control can be with
the foreigners even if they are the minority.
Let us say 40 percent of the capital is owned
by them, but it is the voting capital, whereas,
the Filipinos own the nonvoting shares. So
we can have a situation where the
corporation is controlled by foreigners
despite being the minority because they
have the voting capital. That is the anomaly
that would result here.
MR. BENGZON. No, the reason we
eliminated the word "stock" as stated in the
1973 and 1935 Constitutions is that
according to Commissioner Rodrigo, there
are associations that do not have stocks.
That is why we say "CAPITAL."
MR. AZCUNA. We should not eliminate the
phrase "controlling interest."
MR. BENGZON. In the case of stock
corporations, it is assumed.40 (Boldfacing and
underscoring supplied)
Thus, 60 percent of the "capital" assumes, or
should result in, a "controlling interest" in the
corporation.
The use of the term "capital" was intended to
replace the word "stock" because associations
without stocks can operate public utilities as
long as they meet the 60-40 ownership
requirement in favor of Filipino citizens
prescribed in Section 11, Article XII of the
Constitution. However, this did not change the
intent of the framers of the Constitution to
reserve exclusively to Philippine nationals the
"controlling interest" in public utilities.
During the drafting of the 1935 Constitution,
economic protectionism was "the battle-cry of
the nationalists in the Convention."41 The same
battle-cry resulted in the nationalization of the
public utilities.42 This is also the same intent of
the framers of the 1987 Constitution who
adopted the exact formulation embodied in the
1935 and 1973 Constitutions on foreign equity
limitations in partially nationalized industries.
The OSG, in its own behalf and as counsel for
the State,43 agrees fully with the Court’s
interpretation of the term "capital." In its
Consolidated Comment, the OSG explains that
the deletion of the phrase "controlling interest"
and replacement of the word "stock" with the
term "capital" were intended specifically to
extend the scope of the entities qualified to
operate public utilities to include associations
without stocks. The framers’ omission of the
phrase "controlling interest" did not mean the
inclusion of all shares of stock, whether voting
or non-voting. The OSG reiterated essentially
the Court’s declaration that the Constitution
reserved exclusively to Philippine nationals the
ownership and operation of public utilities
consistent with the State’s policy to "develop a
self-reliant and independent national
economy effectively controlled by Filipinos."
As we held in our 28 June 2011 Decision, to
construe broadly the term "capital" as the total
outstanding capital stock, treated as
a single class regardless of the actual
classification of shares, grossly contravenes the
intent and letter of the Constitution that the
"State shall develop a self-reliant and
independent national economy effectively
controlled by Filipinos." We illustrated the
glaring anomaly which would result in defining
the term "capital" as the total outstanding capital
stock of a corporation, treated as a single class
of shares regardless of the actual classification
of shares, to wit:
Let us assume that a corporation has 100
common shares owned by foreigners and
1,000,000 non-voting preferred shares owned
by Filipinos, with both classes of share having a
par value of one peso (₱ 1.00) per share. Under
the broad definition of the term "capital," such
corporation would be considered compliant with
the 40 percent constitutional limit on foreign
equity of public utilities since the overwhelming
majority, or more than 99.999 percent, of the
total outstanding capital stock is Filipino owned.
This is obviously absurd.
In the example given, only the foreigners
holding the common shares have voting rights
in the election of directors, even if they hold only
100 shares. The foreigners, with a minuscule
equity of less than 0.001 percent, exercise
control over the public utility. On the other hand,
the Filipinos, holding more than 99.999 percent
of the equity, cannot vote in the election of
directors and hence, have no control over the
public utility. This starkly circumvents the intent
of the framers of the Constitution, as well as the
clear language of the Constitution, to place the
control of public utilities in the hands of
Filipinos. x x x
Further, even if foreigners who own more than
forty percent of the voting shares elect an all-
Filipino board of directors, this situation does
not guarantee Filipino control and does not in
any way cure the violation of the Constitution.
The independence of the Filipino board
members so elected by such foreign
shareholders is highly doubtful. As the OSG
pointed out, quoting Justice George
Sutherland’s words in Humphrey’s Executor v.
US,44 "x x x it is quite evident that one who
holds his office only during the pleasure of
another cannot be depended upon to maintain
an attitude of independence against the latter’s
will." Allowing foreign shareholders to elect a
controlling majority of the board, even if all the
directors are Filipinos, grossly circumvents the
letter and intent of the Constitution and defeats
the very purpose of our nationalization laws.
VII.
Last sentence of Section 11, Article XII of the
Constitution
The last sentence of Section 11, Article XII of
the 1987 Constitution reads:
The participation of foreign investors in the
governing body of any public utility enterprise
shall be limited to their proportionate share in its
capital, and all the executive and managing
officers of such corporation or association must
be citizens of the Philippines.
During the Oral Arguments, the OSG
emphasized that there was never a question on
the intent of the framers of the Constitution to
limit foreign ownership, and assure majority
Filipino ownership and control of public utilities.
The OSG argued, "while the delegates
disagreed as to the percentage threshold to
adopt, x x x the records show they clearly
understood that Filipino control of the public
utility corporation can only be and is obtained
only through the election of a majority of the
members of the board."
Indeed, the only point of contention during the
deliberations of the Constitutional Commission
on 23 August 1986 was the extent of majority
Filipino control of public utilities. This is evident
from the following exchange:
THE PRESIDENT. Commissioner Jamir is
recognized.
MR. JAMIR. Madam President, my proposed
amendment on lines 20 and 21 is to delete the
phrase "two thirds of whose voting stock or
controlling interest," and instead substitute the
words "SIXTY PERCENT OF WHOSE
CAPITAL" so that the sentence will read: "No
franchise, certificate, or any other form of
authorization for the operation of a public utility
shall be granted except to citizens of the
Philippines or to corporations or associations
organized under the laws of the Philippines at
least SIXTY PERCENT OF WHOSE CAPITAL
is owned by such citizens."
xxxx
THE PRESIDENT: Will Commissioner Jamir
first explain?
MR. JAMIR. Yes, in this Article on National
Economy and Patrimony, there were two
previous sections in which we fixed the Filipino
equity to 60 percent as against 40 percent for
foreigners. It is only in this Section 15 with
respect to public utilities that the committee
proposal was increased to two-thirds. I think it
would be better to harmonize this provision by
providing that even in the case of public utilities,
the minimum equity for Filipino citizens should
be 60 percent.
MR. ROMULO. Madam President.
THE PRESIDENT. Commissioner Romulo is
recognized.
MR. ROMULO. My reason for supporting the
amendment is based on the discussions I have
had with representatives of the Filipino majority
owners of the international record carriers, and
the subsequent memoranda they submitted to
me. x x x
Their second point is that under the Corporation
Code, the management and control of a
corporation is vested in the board of directors,
not in the officers but in the board of directors.
The officers are only agents of the board. And
they believe that with 60 percent of the equity,
the Filipino majority stockholders undeniably
control the board. Only on important corporate
acts can the 40-percent foreign equity exercise
a veto, x x x.
x x x x45
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. Commissioner Rosario Braid
is recognized.
MS. ROSARIO BRAID. Yes, in the interest of
equal time, may I also read from a
memorandum by the spokesman of the
Philippine Chamber of Communications on why
they would like to maintain the present equity, I
am referring to the 66 2/3. They would prefer to
have a 75-25 ratio but would settle for 66 2/3. x
xx
xxxx
THE PRESIDENT. Just to clarify, would
Commissioner Rosario Braid support the
proposal of two-thirds rather than the 60
percent?
MS. ROSARIO BRAID. I have added a clause
that will put management in the hands of
Filipino citizens.
x x x x46
While they had differing views on the
percentage of Filipino ownership of capital, it is
clear that the framers of the Constitution
intended public utilities to be majority Filipino-
owned and controlled. To ensure that Filipinos
control public utilities, the framers of the
Constitution approved, as additional safeguard,
the inclusion of the last sentence of Section 11,
Article XII of the Constitution commanding that
"[t]he participation of foreign investors in the
governing body of any public utility enterprise
shall be limited to their proportionate share in its
capital, and all the executive and managing
officers of such corporation or association must
be citizens of the Philippines." In other words,
the last sentence of Section 11, Article XII of the
Constitution mandates that (1) the participation
of foreign investors in the governing body of the
corporation or association shall be limited to
their proportionate share in the capital of such
entity; and (2) all officers of the corporation or
association must be Filipino citizens.
Commissioner Rosario Braid proposed the
inclusion of the phrase requiring the managing
officers of the corporation or association to be
Filipino citizens specifically to prevent
management contracts, which were designed
primarily to circumvent the Filipinization of
public utilities, and to assure Filipino control of
public utilities, thus:
MS. ROSARIO BRAID. x x x They also like to
suggest that we amend this provision by adding
a phrase which states: "THE MANAGEMENT
BODY OF EVERY CORPORATION OR
ASSOCIATION SHALL IN ALL CASES BE
CONTROLLED BY CITIZENS OF THE
PHILIPPINES." I have with me their position
paper.
THE PRESIDENT. The Commissioner may
proceed.
MS. ROSARIO BRAID. The three major
international record carriers in the Philippines,
which Commissioner Romulo mentioned –
Philippine Global Communications, Eastern
Telecommunications, Globe Mackay Cable –
are 40-percent owned by foreign multinational
companies and 60-percent owned by their
respective Filipino partners. All three, however,
also have management contracts with these
foreign companies – Philcom with RCA, ETPI
with Cable and Wireless PLC, and GMCR with
ITT. Up to the present time, the general
managers of these carriers are foreigners.
While the foreigners in these common carriers
are only minority owners, the foreign
multinationals are the ones managing and
controlling their operations by virtue of their
management contracts and by virtue of their
strength in the governing bodies of these
carriers.47
xxxx
MR. OPLE. I think a number of us have agreed
to ask Commissioner Rosario Braid to propose
an amendment with respect to the operating
management of public utilities, and in this
amendment, we are associated with Fr. Bernas,
Commissioners Nieva and Rodrigo.
Commissioner Rosario Braid will state this
amendment now.
Thank you.
MS. ROSARIO BRAID. Madam President.
THE PRESIDENT. This is still on Section 15.
MS. ROSARIO BRAID. Yes.
MR. VILLEGAS. Yes, Madam President.
xxxx
MS. ROSARIO BRAID. Madam President, I
propose a new section to read: ‘THE
MANAGEMENT BODY OF EVERY
CORPORATION OR ASSOCIATION SHALL IN
ALL CASES BE CONTROLLED BY CITIZENS
OF THE PHILIPPINES."
This will prevent management contracts and
assure control by Filipino citizens. Will the
committee assure us that this amendment will
insure that past activities such as management
contracts will no longer be possible under this
amendment?
xxxx
FR. BERNAS. Madam President.
THE PRESIDENT. Commissioner Bernas is
recognized.
FR. BERNAS. Will the committee accept a
reformulation of the first part?
MR. BENGZON. Let us hear it.
FR. BERNAS. The reformulation will be
essentially the formula of the 1973 Constitution
which reads: "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE GOVERNING
BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR
PROPORTIONATE SHARE IN THE CAPITAL
THEREOF AND..."
MR. VILLEGAS. "ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH
CORPORATIONS AND ASSOCIATIONS
MUST BE CITIZENS OF THE PHILIPPINES."
MR. BENGZON. Will Commissioner Bernas
read the whole thing again?
FR. BERNAS. "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE GOVERNING
BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR
PROPORTIONATE SHARE IN THE CAPITAL
THEREOF..." I do not have the rest of the copy.
MR. BENGZON. "AND ALL THE EXECUTIVE
AND MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST
BE CITIZENS OF THE PHILIPPINES." Is that
correct?
MR. VILLEGAS. Yes.
MR. BENGZON. Madam President, I think that
was said in a more elegant language. We
accept the amendment. Is that all right with
Commissioner Rosario Braid?
MS. ROSARIO BRAID. Yes.
xxxx
MR. DE LOS REYES. The governing body
refers to the board of directors and trustees.
MR. VILLEGAS. That is right.
MR. BENGZON. Yes, the governing body refers
to the board of directors.
MR. REGALADO. It is accepted.
MR. RAMA. The body is now ready to vote,
Madam President.
VOTING
xxxx
The results show 29 votes in favor and none
against; so the proposed amendment is
approved.
xxxx
THE PRESIDENT. All right. Can we proceed
now to vote on Section 15?
MR. RAMA. Yes, Madam President.
THE PRESIDENT. Will the chairman of the
committee please read Section 15?
MR. VILLEGAS. The entire Section 15, as
amended, reads: "No franchise, certificate, or
any other form of authorization for the operation
of a public utility shall be granted except to
citizens of the Philippines or to corporations or
associations organized under the laws of the
Philippines at least 60 PERCENT OF WHOSE
CAPITAL is owned by such citizens." May I
request Commissioner Bengzon to please
continue reading.
MR. BENGZON. "THE PARTICIPATION OF
FOREIGN INVESTORS IN THE GOVERNING
BODY OF ANY PUBLIC UTILITY
ENTERPRISE SHALL BE LIMITED TO THEIR
PROPORTIONATE SHARE IN THE CAPITAL
THEREOF AND ALL THE EXECUTIVE AND
MANAGING OFFICERS OF SUCH
CORPORATIONS OR ASSOCIATIONS MUST
BE CITIZENS OF THE PHILIPPINES."
MR. VILLEGAS. "NOR SHALL SUCH
FRANCHISE, CERTIFICATE OR
AUTHORIZATION BE EXCLUSIVE IN
CHARACTER OR FOR A PERIOD LONGER
THAN TWENTY-FIVE YEARS RENEWABLE
FOR NOT MORE THAN TWENTY-FIVE
YEARS. Neither shall any such franchise or
right be granted except under the condition that
it shall be subject to amendment, alteration, or
repeal by Congress when the common good so
requires. The State shall encourage equity
participation in public utilities by the general
public."
VOTING
xxxx
The results show 29 votes in favor and 4
against; Section 15, as amended, is
approved.48 (Emphasis supplied)
The last sentence of Section 11, Article XII of
the 1987 Constitution, particularly the provision
on the limited participation of foreign investors
in the governing body of public utilities, is a
reiteration of the last sentence of Section 5,
Article XIV of the 1973 Constitution,49 signifying
its importance in reserving ownership and
control of public utilities to Filipino citizens.
VIII.
The undisputed facts
There is no dispute, and respondents do not
claim the contrary, that (1) foreigners own
64.27% of the common shares of PLDT, which
class of shares exercises the sole right to vote
in the election of directors, and thus foreigners
control PLDT; (2) Filipinos own only 35.73% of
PLDT’s common shares, constituting a minority
of the voting stock, and thus Filipinos do not
control PLDT; (3) preferred shares, 99.44%
owned by Filipinos, have no voting rights; (4)
preferred shares earn only 1/70 of the dividends
that common shares earn;50 (5) preferred
shares have twice the par value of common
shares; and (6) preferred shares constitute
77.85% of the authorized capital stock of PLDT
and common shares only 22.15%.
Despite the foregoing facts, the Court did not
decide, and in fact refrained from ruling on the
question of whether PLDT violated the 60-40
ownership requirement in favor of Filipino
citizens in Section 11, Article XII of the 1987
Constitution. Such question indisputably calls
for a presentation and determination of
evidence through a hearing, which is generally
outside the province of the Court’s jurisdiction,
but well within the SEC’s statutory powers.
Thus, for obvious reasons, the Court limited its
decision on the purely legal and threshold issue
on the definition of the term "capital" in Section
11, Article XII of the Constitution and directed
the SEC to apply such definition in determining
the exact percentage of foreign ownership in
PLDT.
IX.
PLDT is not an indispensable party;
SEC is impleaded in this case.
In his petition, Gamboa prays, among others:
xxxx
5. For the Honorable Court to issue a
declaratory relief that ownership of common or
voting shares is the sole basis in determining
foreign equity in a public utility and that any
other government rulings, opinions, and
regulations inconsistent with this declaratory
relief be declared unconstitutional and a
violation of the intent and spirit of the 1987
Constitution;
6. For the Honorable Court to declare null and
void all sales of common stocks to foreigners in
excess of 40 percent of the total subscribed
common shareholdings; and
7. For the Honorable Court to direct the
Securities and Exchange Commission and
Philippine Stock Exchange to require PLDT to
make a public disclosure of all of its foreign
shareholdings and their actual and real
beneficial owners.
Other relief(s) just and equitable are likewise
prayed for. (Emphasis supplied)
As can be gleaned from his prayer, Gamboa
clearly asks this Court to compel the SEC to
perform its statutory duty to investigate whether
"the required percentage of ownership of the
capital stock to be owned by citizens of the
Philippines has been complied with [by PLDT]
as required by x x x the Constitution."51 Such
plea clearly negates SEC’s argument that it was
not impleaded.
Granting that only the SEC Chairman was
impleaded in this case, the Court has ample
powers to order the SEC’s compliance with its
directive contained in the 28 June 2011
Decision in view of the far-reaching implications
of this case. In Domingo v. Scheer,52 the Court
dispensed with the amendment of the pleadings
to implead the Bureau of Customs considering
(1) the unique backdrop of the case; (2) the
utmost need to avoid further delays; and (3) the
issue of public interest involved. The Court held:
The Court may be curing the defect in this case
by adding the BOC as party-petitioner. The
petition should not be dismissed because the
second action would only be a repetition of the
first. In Salvador, et al., v. Court of Appeals, et
al., we held that this Court has full powers, apart
from that power and authority which is inherent,
to amend the processes, pleadings,
proceedings and decisions by substituting as
party-plaintiff the real party-in-interest. The
Court has the power to avoid delay in the
disposition of this case, to order its
amendment as to implead the BOC as party-
respondent. Indeed, it may no longer be
necessary to do so taking into account the
unique backdrop in this case, involving as it
does an issue of public interest. After all, the
Office of the Solicitor General has represented
the petitioner in the instant proceedings, as well
as in the appellate court, and maintained the
validity of the deportation order and of the
BOC’s Omnibus Resolution. It cannot, thus, be
claimed by the State that the BOC was not
afforded its day in court, simply because only
the petitioner, the Chairperson of the BOC, was
the respondent in the CA, and the petitioner in
the instant recourse. In Alonso v. Villamor, we
had the occasion to state:
There is nothing sacred about processes or
pleadings, their forms or contents. Their
sole purpose is to facilitate the application
of justice to the rival claims of contending
parties. They were created, not to hinder and
delay, but to facilitate and promote, the
administration of justice. They do not constitute
the thing itself, which courts are always striving
to secure to litigants. They are designed as the
means best adapted to obtain that thing. In
other words, they are a means to an end. When
they lose the character of the one and become
the other, the administration of justice is at fault
and courts are correspondingly remiss in the
performance of their obvious duty.53 (Emphasis
supplied)
In any event, the SEC has expressly
manifested54 that it will abide by the Court’s
decision and defer to the Court’s definition
of the term "capital" in Section 11, Article XII
of the Constitution. Further, the SEC entered
its special appearance in this case and
argued during the Oral Arguments,
indicating its submission to the Court’s
jurisdiction. It is clear, therefore, that there
exists no legal impediment against the
proper and immediate implementation of the
Court’s directive to the SEC.
PLDT is an indispensable party only insofar as
the other issues, particularly the factual
questions, are concerned. In other words, PLDT
must be impleaded in order to fully resolve the
issues on (1) whether the sale of 111,415 PTIC
shares to First Pacific violates the constitutional
limit on foreign ownership of PLDT; (2) whether
the sale of common shares to foreigners
exceeded the 40 percent limit on foreign equity
in PLDT; and (3) whether the total percentage
of the PLDT common shares with voting rights
complies with the 60-40 ownership requirement
in favor of Filipino citizens under the
Constitution for the ownership and operation of
PLDT. These issues indisputably call for an
examination of the parties’ respective evidence,
and thus are clearly within the jurisdiction of the
SEC. In short, PLDT must be impleaded, and
must necessarily be heard, in the proceedings
before the SEC where the factual issues will be
thoroughly threshed out and resolved.
Notably, the foregoing issues were left
untouched by the Court. The Court did not
rule on the factual issues raised by Gamboa,
except the single and purely legal issue on the
definition of the term "capital" in Section 11,
Article XII of the Constitution. The Court
confined the resolution of the instant case to
this threshold legal issue in deference to the
fact-finding power of the SEC.
Needless to state, the Court can validly,
properly, and fully dispose of the fundamental
legal issue in this case even without the
participation of PLDT since defining the term
"capital" in Section 11, Article XII of the
Constitution does not, in any way, depend on
whether PLDT was impleaded. Simply put,
PLDT is not indispensable for a complete
resolution of the purely legal question in this
case.55 In fact, the Court, by treating the petition
as one for mandamus,56 merely directed the
SEC to apply the Court’s definition of the term
"capital" in Section 11, Article XII of the
Constitution in determining whether PLDT
committed any violation of the said
constitutional provision. The dispositive
portion of the Court’s ruling is addressed
not to PLDT but solely to the SEC, which is
the administrative agency tasked to enforce
the 60-40 ownership requirement in favor of
Filipino citizens in Section 11, Article XII of
the Constitution.
Since the Court limited its resolution on the
purely legal issue on the definition of the term
"capital" in Section 11, Article XII of the 1987
Constitution, and directed the SEC to
investigate any violation by PLDT of the 60-40
ownership requirement in favor of Filipino
citizens under the Constitution,57 there is no
deprivation of PLDT’s property or denial of
PLDT’s right to due process, contrary to
Pangilinan and Nazareno’s misimpression. Due
process will be afforded to PLDT when it
presents proof to the SEC that it complies, as it
claims here, with Section 11, Article XII of the
Constitution.
X.
Foreign Investments in the Philippines
Movants fear that the 28 June 2011 Decision
would spell disaster to our economy, as it may
result in a sudden flight of existing foreign
investors to "friendlier" countries and
simultaneously deterring new foreign investors
to our country. In particular, the PSE claims that
the 28 June 2011 Decision may result in the
following: (1) loss of more than ₱ 630 billion in
foreign investments in PSE-listed shares; (2)
massive decrease in foreign trading
transactions; (3) lower PSE Composite Index;
and (4) local investors not investing in PSE-
listed shares.58
Dr. Bernardo M. Villegas, one of the amici
curiae in the Oral Arguments, shared movants’
apprehension. Without providing specific
details, he pointed out the depressing state of
the Philippine economy compared to our
neighboring countries which boast of growing
economies. Further, Dr. Villegas explained that
the solution to our economic woes is for the
government to "take-over" strategic industries,
such as the public utilities sector, thus:
JUSTICE CARPIO:
I would like also to get from you Dr. Villegas if
you have additional information on whether this
high FDI59 countries in East Asia have allowed
foreigners x x x control [of] their public utilities,
so that we can compare apples with apples.
DR. VILLEGAS:
Correct, but let me just make a comment. When
these neighbors of ours find an industry
strategic, their solution is not to "Filipinize" or
"Vietnamize" or "Singaporize." Their solution is
to make sure that those industries are in the
hands of state enterprises. So, in these
countries, nationalization means the
government takes over. And because their
governments are competent and honest
enough to the public, that is the solution. x x
x 60 (Emphasis supplied)
If government ownership of public utilities is the
solution, then foreign investments in our public
utilities serve no purpose. Obviously, there can
never be foreign investments in public utilities if,
as Dr. Villegas claims, the "solution is to make
sure that those industries are in the hands of
state enterprises." Dr. Villegas’s argument that
foreign investments in telecommunication
companies like PLDT are badly needed to save
our ailing economy contradicts his own theory
that the solution is for government to take over
these companies. Dr. Villegas is barking up the
wrong tree since State ownership of public
utilities and foreign investments in such
industries are diametrically opposed concepts,
which cannot possibly be reconciled.
In any event, the experience of our neighboring
countries cannot be used as argument to decide
the present case differently for two reasons.
First, the governments of our neighboring
countries have, as claimed by Dr. Villegas,
taken over ownership and control of their
strategic public utilities like the
telecommunications industry. Second, our
Constitution has specific provisions limiting
foreign ownership in public utilities which the
Court is sworn to uphold regardless of the
experience of our neighboring countries.
In our jurisdiction, the Constitution expressly
reserves the ownership and operation of public
utilities to Filipino citizens, or corporations or
associations at least 60 percent of whose
capital belongs to Filipinos. Following Dr.
Villegas’s claim, the Philippines appears to be
more liberal in allowing foreign investors to own
40 percent of public utilities, unlike in other
Asian countries whose governments own and
operate such industries.
XI.
Prospective Application of Sanctions
In its Motion for Partial Reconsideration, the
SEC sought to clarify the reckoning period of
the application and imposition of appropriate
sanctions against PLDT if found violating
Section 11, Article XII of the
Constitution.1avvphi1
As discussed, the Court has directed the SEC
to investigate and determine whether PLDT
violated Section 11, Article XII of the
Constitution. Thus, there is no dispute that it is
only after the SEC has determined PLDT’s
violation, if any exists at the time of the
commencement of the administrative case or
investigation, that the SEC may impose the
statutory sanctions against PLDT. In other
words, once the 28 June 2011 Decision
becomes final, the SEC shall impose the
appropriate sanctions only if it finds after due
hearing that, at the start of the administrative
case or investigation, there is an existing
violation of Section 11, Article XII of the
Constitution. Under prevailing jurisprudence,
public utilities that fail to comply with the
nationality requirement under Section 11, Article
XII and the FIA can cure their deficiencies prior
to the start of the administrative case or
investigation.61
XII.
Final Word
The Constitution expressly declares as State
policy the development of an economy
"effectively controlled" by Filipinos. Consistent
with such State policy, the Constitution explicitly
reserves the ownership and operation of public
utilities to Philippine nationals, who are defined
in the Foreign Investments Act of 1991 as
Filipino citizens, or corporations or associations
at least 60 percent of whose capital with voting
rights belongs to Filipinos. The FIA’s
implementing rules explain that "[f]or stocks to
be deemed owned and held by Philippine
citizens or Philippine nationals, mere legal title
is not enough to meet the required Filipino
equity. Full beneficial ownership of the
stocks, coupled with appropriate voting
rights is essential." In effect, the FIA clarifies,
reiterates and confirms the interpretation that
the term "capital" in Section 11, Article XII of the
1987 Constitution refers to shares with voting
rights, as well as with full beneficial
ownership. This is precisely because the right
to vote in the election of directors, coupled with
full beneficial ownership of stocks, translates to
effective control of a corporation.
Any other construction of the term "capital" in
Section 11, Article XII of the Constitution
contravenes the letter and intent of the
Constitution. Any other meaning of the term
"capital" openly invites alien domination of
economic activities reserved exclusively to
Philippine nationals. Therefore, respondents’
interpretation will ultimately result in handing
over effective control of our national economy to
foreigners in patent violation of the Constitution,
making Filipinos second-class citizens in their
own country.
Filipinos have only to remind themselves of how
this country was exploited under the Parity
Amendment, which gave Americans the same
rights as Filipinos in the exploitation of natural
resources, and in the ownership and control of
public utilities, in the Philippines. To do this the
1935 Constitution, which contained the same 60
percent Filipino ownership and control
requirement as the present 1987 Constitution,
had to be amended to give Americans parity
rights with Filipinos. There was bitter opposition
to the Parity Amendment62 and many Filipinos
eagerly awaited its expiration. In late 1968,
PLDT was one of the American-controlled
public utilities that became Filipino-controlled
when the controlling American stockholders
divested in anticipation of the expiration of the
Parity Amendment on 3 July 1974.63 No WHEREFORE, we DENY the motions for
economic suicide happened when control of reconsideration WITH FINALITY. No further
public utilities and mining corporations passed pleadings shall be entertained.
to Filipinos’ hands upon expiration of the Parity
Amendment. SO ORDERED.
Movants’ interpretation of the term "capital"
would bring us back to the same evils spawned
by the Parity Amendment, effectively giving
foreigners parity rights with Filipinos, but
this time even without any amendment to
the present Constitution. Worse, movants’
interpretation opens up our national economy
to effective control not only by Americans but
also by all foreigners, be they Indonesians,
Malaysians or Chinese, even in the absence
of reciprocal treaty arrangements. At least
the Parity Amendment, as implemented by the
Laurel-Langley Agreement, gave the capital-
starved Filipinos theoretical parity – the same
rights as Americans to exploit natural resources,
and to own and control public utilities, in the
United States of America. Here, movants’
interpretation would effectively mean
a unilateral opening up of our national
economy to all foreigners, without any
reciprocal arrangements. That would mean
that Indonesians, Malaysians and Chinese
nationals could effectively control our mining
companies and public utilities while Filipinos,
even if they have the capital, could not control
similar corporations in these countries.
The 1935, 1973 and 1987 Constitutions have
the same 60 percent Filipino ownership and
control requirement for public utilities like PLOT.
Any deviation from this requirement
necessitates an amendment to the Constitution
as exemplified by the Parity Amendment. This
Court has no power to amend the Constitution
for its power and duty is only to faithfully apply
and interpret the Constitution.
 Republic of the Philippines
SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 195580 April 21, 2014
NARRA NICKEL MINING AND
DEVELOPMENT CORP., TESORO MINING
AND DEVELOPMENT, INC., and MCARTHUR
MINING, INC., Petitioners,
vs.
REDMONT CONSOLIDATED MINES
CORP., Respondent.
DECISION
VELASCO, JR., J.:
Before this Court is a Petition for Review on
Certiorari under Rule 45 filed by Narra Nickel
and Mining Development Corp. (Narra), Tesoro
Mining and Development, Inc. (Tesoro), and
McArthur Mining Inc. (McArthur), which seeks to
reverse the October 1, 2010 Decision1 and the
February 15, 2011 Resolution of the Court of
Appeals (CA).
The Facts
Sometime in December 2006, respondent
Redmont Consolidated Mines Corp. (Redmont),
a domestic corporation organized and existing
under Philippine laws, took interest in mining
and exploring certain areas of the province of
Palawan. After inquiring with the Department of
Environment and Natural Resources (DENR), it
learned that the areas where it wanted to
undertake exploration and mining activities
where already covered by Mineral Production
Sharing Agreement (MPSA) applications of
petitioners Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-
interest Sara Marie Mining, Inc. (SMMI), filed an
application for an MPSA and Exploration Permit
(EP) with the Mines and Geo-Sciences Bureau
(MGB), Region IV-B, Office of the Department
of Environment and Natural Resources (DENR).
Subsequently, SMMI was issued MPSA-AMA-
IVB-153 covering an area of over 1,782
hectares in Barangay Sumbiling, Municipality of
Bataraza, Province of Palawan and EPA-IVB-44
which includes an area of 3,720 hectares in
Barangay Malatagao, Bataraza, Palawan. The
MPSA and EP were then transferred to
Madridejos Mining Corporation (MMC) and, on
November 6, 2006, assigned to petitioner
McArthur.2
Petitioner Narra acquired its MPSA from Alpha
Resources and Development Corporation and
Patricia Louise Mining & Development
Corporation (PLMDC) which previously filed an
application for an MPSA with the MGB, Region
IV-B, DENR on January 6, 1992. Through the
said application, the DENR issued MPSA-IV-1-
12 covering an area of 3.277 hectares in
barangays Calategas and San Isidro,
Municipality of Narra, Palawan. Subsequently,
PLMDC conveyed, transferred and/or assigned
its rights and interests over the MPSA
application in favor of Narra.
Another MPSA application of SMMI was filed
with the DENR Region IV-B, labeled as MPSA-
AMA-IVB-154 (formerly EPA-IVB-47) over 3,402
hectares in Barangays Malinao and Princesa
Urduja, Municipality of Narra, Province of
Palawan. SMMI subsequently conveyed,
transferred and assigned its rights and interest
over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the
Panel of Arbitrators (POA) of the DENR three
(3) separate petitions for the denial of
petitioners’ applications for MPSA designated
as AMA-IVB-153, AMA-IVB-154 and MPSA IV-
1-12.
In the petitions, Redmont alleged that at least
60% of the capital stock of McArthur, Tesoro
and Narra are owned and controlled by MBMI
Resources, Inc. (MBMI), a 100% Canadian
corporation. Redmont reasoned that since
MBMI is a considerable stockholder of
petitioners, it was the driving force behind
petitioners’ filing of the MPSAs over the areas
covered by applications since it knows that it
can only participate in mining activities through
corporations which are deemed Filipino citizens.
Redmont argued that given that petitioners’
capital stocks were mostly owned by MBMI,
they were likewise disqualified from engaging in
mining activities through MPSAs, which are
reserved only for Filipino citizens.
In their Answers, petitioners averred that they
were qualified persons under Section 3(aq) of
Republic Act No. (RA) 7942 or the Philippine
Mining Act of 1995 which provided:
Sec. 3 Definition of Terms. As used in and for
purposes of this Act, the following terms,
whether in singular or plural, shall mean:
xxxx
(aq) "Qualified person" means any citizen of the
Philippines with capacity to contract, or a
corporation, partnership, association, or
cooperative organized or authorized for the
purpose of engaging in mining, with technical
and financial capability to undertake mineral
resources development and duly registered in
accordance with law at least sixty per cent
(60%) of the capital of which is owned by
citizens of the Philippines: Provided, That a
legally organized foreign-owned corporation
shall be deemed a qualified person for purposes
of granting an exploration permit, financial or
technical assistance agreement or mineral
processing permit.
Additionally, they stated that their nationality as
applicants is immaterial because they also
applied for Financial or Technical Assistance
Agreements (FTAA) denominated as AFTA-
IVB-09 for McArthur, AFTA-IVB-08 for Tesoro
and AFTA-IVB-07 for Narra, which are granted
to foreign-owned corporations. Nevertheless,
they claimed that the issue on nationality should
not be raised since McArthur, Tesoro and Narra
are in fact Philippine Nationals as 60% of their
capital is owned by citizens of the Philippines.
They asserted that though MBMI owns 40% of
the shares of PLMC (which owns 5,997 shares
of Narra),3 40% of the shares of MMC (which
owns 5,997 shares of McArthur)4 and 40% of
the shares of SLMC (which, in turn, owns 5,997
shares of Tesoro),5 the shares of MBMI will not
make it the owner of at least 60% of the capital
stock of each of petitioners. They added that the
best tool used in determining the nationality of a
corporation is the "control test," embodied in
Sec. 3 of RA 7042 or the Foreign Investments
Act of 1991. They also claimed that the POA of
DENR did not have jurisdiction over the issues
in Redmont’s petition since they are not
enumerated in Sec. 77 of RA 7942. Finally, they
stressed that Redmont has no personality to
sue them because it has no pending claim or
application over the areas applied for by
petitioners.
On December 14, 2007, the POA issued a
Resolution disqualifying petitioners from gaining
MPSAs. It held:
[I]t is clearly established that respondents are
not qualified applicants to engage in mining
activities. On the other hand, [Redmont] having
filed its own applications for an EPA over the
areas earlier covered by the MPSA application
of respondents may be considered if and when
they are qualified under the law. The violation of
the requirements for the issuance and/or grant
of permits over mining areas is clearly
established thus, there is reason to believe that
the cancellation and/or revocation of permits
already issued under the premises is in order
and open the areas covered to other qualified
applicants.
xxxx
WHEREFORE, the Panel of Arbitrators finds the
Respondents, McArthur Mining Inc., Tesoro
Mining and Development, Inc., and Narra Nickel
Mining and Development Corp. as,
DISQUALIFIED for being considered as Foreign
Corporations. Their Mineral Production Sharing
Agreement (MPSA) are hereby x x x
DECLARED NULL AND VOID.6
The POA considered petitioners as foreign
corporations being "effectively controlled" by
MBMI, a 100% Canadian company and
declared their MPSAs null and void. In the same
Resolution, it gave due course to Redmont’s
EPAs. Thereafter, on February 7, 2008, the
POA issued an Order7 denying the Motion for
Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the
POA, McArthur and Tesoro filed a joint Notice of
Appeal8 and Memorandum of Appeal9 with the
Mines Adjudication Board (MAB) while Narra
separately filed its Notice of Appeal10and
Memorandum of Appeal.11
In their respective memorandum, petitioners
emphasized that they are qualified persons
under the law. Also, through a letter, they
informed the MAB that they had their individual
MPSA applications converted to FTAAs.
McArthur’s FTAA was denominated as AFTA-
IVB-0912 on May 2007, while Tesoro’s MPSA
application was converted to AFTA-IVB-0813 on
May 28, 2007, and Narra’s FTAA was converted
to AFTA-IVB-0714 on March 30, 2006.
Pending the resolution of the appeal filed by
petitioners with the MAB, Redmont filed a
Complaint15 with the Securities and Exchange
Commission (SEC), seeking the revocation of
the certificates for registration of petitioners on
the ground that they are foreign-owned or
controlled corporations engaged in mining in
violation of Philippine laws. Thereafter,
Redmont filed on September 1, 2008 a
Manifestation and Motion to Suspend
Proceeding before the MAB praying for the
suspension of the proceedings on the appeals
filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont
filed before the Regional Trial Court of Quezon
City, Branch 92 (RTC) a Complaint16 for
injunction with application for issuance of a
temporary restraining order (TRO) and/or writ of
preliminary injunction, docketed as Civil Case
No. 08-63379. Redmont prayed for the deferral
of the MAB proceedings pending the resolution
of the Complaint before the SEC.
But before the RTC can resolve Redmont’s
Complaint and applications for injunctive reliefs,
the MAB issued an Order on September 10,
2008, finding the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the
Mines Adjudication Board hereby REVERSES
and SETS ASIDE the Resolution dated 14
December 2007 of the Panel of Arbitrators of
Region IV-B (MIMAROPA) in POA-DENR Case
Nos. 2001-01, 2007-02 and 2007-03, and its
Order dated 07 February 2008 denying the
Motions for Reconsideration of the Appellants.
The Petition filed by Redmont Consolidated
Mines Corporation on 02 January 2007 is
hereby ordered DISMISSED.17
Belatedly, on September 16, 2008, the RTC
issued an Order18 granting Redmont’s
application for a TRO and setting the case for
hearing the prayer for the issuance of a writ of
preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont
filed a Motion for Reconsideration19 of the
September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for
Reconsideration20 on September 29, 2008.
Before the MAB could resolve Redmont’s
Motion for Reconsideration and Supplemental
Motion for Reconsideration, Redmont filed
before the RTC a Supplemental Complaint21 in
Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an
Order22 granting the issuance of a writ of
preliminary injunction enjoining the MAB from
finally disposing of the appeals of petitioners
and from resolving Redmont’s Motion for
Reconsideration and Supplement Motion for
Reconsideration of the MAB’s September 10,
2008 Resolution.
On July 1, 2009, however, the MAB issued a
second Order denying Redmont’s Motion for
Reconsideration and Supplemental Motion for
Reconsideration and resolving the appeals filed
by petitioners.
Hence, the petition for review filed by Redmont
before the CA, assailing the Orders issued by
the MAB. On October 1, 2010, the CA rendered
a Decision, the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY
GRANTED. The assailed Orders, dated
September 10, 2008 and July 1, 2009 of the
Mining Adjudication Board are reversed and set
aside. The findings of the Panel of Arbitrators of
the Department of Environment and Natural
Resources that respondents McArthur, Tesoro
and Narra are foreign corporations is upheld
and, therefore, the rejection of their applications
for Mineral Product Sharing Agreement should
be recommended to the Secretary of the DENR.
With respect to the applications of respondents
McArthur, Tesoro and Narra for Financial or
Technical Assistance Agreement (FTAA) or
conversion of their MPSA applications to FTAA,
the matter for its rejection or approval is left for
determination by the Secretary of the DENR
and the President of the Republic of the
Philippines.
SO ORDERED.23
In a Resolution dated February 15, 2011, the
CA denied the Motion for Reconsideration filed
by petitioners.
After a careful review of the records, the CA
found that there was doubt as to the nationality
of petitioners when it realized that petitioners
had a common major investor, MBMI, a
corporation composed of 100% Canadians.
Pursuant to the first sentence of paragraph 7 of
Department of Justice (DOJ) Opinion No. 020,
Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the
Constitution and other laws pertaining to the
exploitation of natural resources, the CA used
the "grandfather rule" to determine the
nationality of petitioners. It provided:
Shares belonging to corporations or
partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered
as of Philippine nationality, but if the percentage
of Filipino ownership in the corporation or
partnership is less than 60%, only the number
of shares corresponding to such percentage
shall be counted as of Philippine nationality.
Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least
60% of the capital stock or capital, respectively,
of which belong to Filipino citizens, all of the
shares shall be recorded as owned by Filipinos.
But if less than 60%, or say, 50% of the capital
stock or capital of the corporation or
partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be recorded
as belonging to aliens.24(emphasis supplied)
In determining the nationality of petitioners, the
CA looked into their corporate structures and
their corresponding common shareholders.
Using the grandfather rule, the CA discovered
that MBMI in effect owned majority of the
common stocks of the petitioners as well as at
least 60% equity interest of other majority
shareholders of petitioners through joint venture
agreements. The CA found that through a "web
of corporate layering, it is clear that one
common controlling investor in all mining
corporations involved x x x is MBMI."25 Thus, it
concluded that petitioners McArthur, Tesoro and
Narra are also in partnership with, or privies-in-
interest of, MBMI.
Furthermore, the CA viewed the conversion of
the MPSA applications of petitioners into FTAA
applications suspicious in nature and, as a
consequence, it recommended the rejection of
petitioners’ MPSA applications by the Secretary
of the DENR.
With regard to the settlement of disputes over
rights to mining areas, the CA pointed out that
the POA has jurisdiction over them and that it
also has the power to determine the of
nationality of petitioners as a prerequisite of the
Constitution prior the conferring of rights to "co-
production, joint venture or production-sharing
agreements" of the state to mining rights.
However, it also stated that the POA’s
jurisdiction is limited only to the resolution of the
dispute and not on the approval or rejection of
the MPSAs. It stipulated that only the Secretary
of the DENR is vested with the power to
approve or reject applications for MPSA.
Finally, the CA upheld the findings of the POA
in its December 14, 2007 Resolution which
considered petitioners McArthur, Tesoro and
Narra as foreign corporations. Nevertheless, the
CA determined that the POA’s declaration that
the MPSAs of McArthur, Tesoro and Narra are
void is highly improper.
While the petition was pending with the CA,
Redmont filed with the Office of the President
(OP) a petition dated May 7, 2010 seeking the
cancellation of petitioners’ FTAAs. The OP
rendered a Decision26 on April 6, 2011, wherein
it canceled and revoked petitioners’ FTAAs for
violating and circumventing the "Constitution x x
x[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well
as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584."27 The OP, in affirming the
cancellation of the issued FTAAs, agreed with
Redmont stating that petitioners committed
violations against the abovementioned laws and
failed to submit evidence to negate them. The
Decision further quoted the December 14, 2007
Order of the POA focusing on the alleged
misrepresentation and claims made by
petitioners of being domestic or Filipino
corporations and the admitted continued mining
operation of PMDC using their locally secured
Small Scale Mining Permit inside the area
earlier applied for an MPSA application which
was eventually transferred to Narra. It also
agreed with the POA’s estimation that the filing
of the FTAA applications by petitioners is a
clear admission that they are "not capable of
conducting a large scale mining operation and
that they need the financial and technical
assistance of a foreign entity in their operation,
that is why they sought the participation of
MBMI Resources, Inc."28 The Decision further
quoted:
The filing of the FTAA application on June 15,
2007, during the pendency of the case only
demonstrate the violations and lack of
qualification of the respondent corporations to
engage in mining. The filing of the FTAA
application conversion which is allowed foreign
corporation of the earlier MPSA is an admission
that indeed the respondent is not Filipino but
rather of foreign nationality who is disqualified
under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in
their head office in Canada suggest that they
are conducting operation only through their local
counterparts.29
The Motion for Reconsideration of the Decision
was further denied by the OP in a
Resolution30 dated July 6, 2011. Petitioners
then filed a Petition for Review on Certiorari of
the OP’s Decision and Resolution with the CA,
docketed as CA-G.R. SP No. 120409. In the CA
Decision dated February 29, 2012, the CA
affirmed the Decision and Resolution of the OP.
Thereafter, petitioners appealed the same CA
decision to this Court which is now pending with
a different division.
Thus, the instant petition for review against the
October 1, 2010 Decision of the CA. Petitioners
put forth the following errors of the CA:
I.
The Court of Appeals erred when it did
not dismiss the case for mootness
despite the fact that the subject matter
of the controversy, the MPSA
Applications, have already been
converted into FTAA applications and
that the same have already been
granted.
II.
The Court of Appeals erred when it did
not dismiss the case for lack of
jurisdiction considering that the Panel
of Arbitrators has no jurisdiction to
determine the nationality of Narra,
Tesoro and McArthur.
III.
The Court of Appeals erred when it did
not dismiss the case on account of
Redmont’s willful forum shopping.
IV.
The Court of Appeals’ ruling that
Narra, Tesoro and McArthur are
foreign corporations based on the
"Grandfather Rule" is contrary to law,
particularly the express mandate of the
Foreign Investments Act of 1991, as
amended, and the FIA Rules.
V.
The Court of Appeals erred when it
applied the exceptions to the res inter
alios acta rule.
 VI.
The Court of Appeals erred when it
concluded that the conversion of the
MPSA Applications into FTAA
Applications were of "suspicious
nature" as the same is based on mere
conjectures and surmises without any
shred of evidence to show the same.31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not
rendering the instant case as moot is without
merit.
Basically, a case is said to be moot and/or
academic when it "ceases to present a
justiciable controversy by virtue of supervening
events, so that a declaration thereon would be
of no practical use or value."32 Thus, the courts
"generally decline jurisdiction over the case or
dismiss it on the ground of mootness."33
The "mootness" principle, however, does accept
certain exceptions and the mere raising of an
issue of "mootness" will not deter the courts
from trying a case when there is a valid reason
to do so. In David v. Macapagal-Arroyo (David),
the Court provided four instances where courts
can decide an otherwise moot case, thus:
1.) There is a grave violation of the
Constitution;
2.) The exceptional character of the
situation and paramount public interest
is involved;
3.) When constitutional issue raised
requires formulation of controlling
principles to guide the bench, the bar,
and the public; and
4.) The case is capable of repetition
yet evading review.34
All of the exceptions stated above are present in
the instant case. We of this Court note that a
grave violation of the Constitution, specifically
Section 2 of Article XII, is being committed by a
foreign corporation right under our country’s
nose through a myriad of corporate layering
under different, allegedly, Filipino corporations.
The intricate corporate layering utilized by the
Canadian company, MBMI, is of exceptional
character and involves paramount public
interest since it undeniably affects the
exploitation of our Country’s natural resources.
The corresponding actions of petitioners during
the lifetime and existence of the instant case
raise questions as what principle is to be
applied to cases with similar issues. No definite
ruling on such principle has been pronounced
by the Court; hence, the disposition of the
issues or errors in the instant case will serve as
a guide "to the bench, the bar and the
public."35 Finally, the instant case is capable of
repetition yet evading review, since the
Canadian company, MBMI, can keep on
utilizing dummy Filipino corporations through
various schemes of corporate layering and
conversion of applications to skirt the
constitutional prohibition against foreign mining
in Philippine soil.
Conversion of MPSA applications to FTAA
applications
We shall discuss the first error in conjunction
with the sixth error presented by petitioners
since both involve the conversion of MPSA
applications to FTAA applications. Petitioners
propound that the CA erred in ruling against
them since the questioned MPSA applications
were already converted into FTAA applications;
thus, the issue on the prohibition relating to
MPSA applications of foreign mining
corporations is academic. Also, petitioners
would want us to correct the CA’s finding which
deemed the aforementioned conversions of
applications as suspicious in nature, since it is
based on mere conjectures and surmises and
not supported with evidence.
We disagree.
The CA’s analysis of the actions of petitioners
after the case was filed against them by
respondent is on point. The changing of
applications by petitioners from one type to
another just because a case was filed against
them, in truth, would raise not a few sceptics’
eyebrows. What is the reason for such
conversion? Did the said conversion not stem
from the case challenging their citizenship and
to have the case dismissed against them for
being "moot"? It is quite obvious that it is
petitioners’ strategy to have the case dismissed
against them for being "moot."
Consider the history of this case and how
petitioners responded to every action done by
the court or appropriate government agency: on
January 2, 2007, Redmont filed three separate
petitions for denial of the MPSA applications of
petitioners before the POA. On June 15, 2007,
petitioners filed a conversion of their MPSA
applications to FTAAs. The POA, in its
December 14, 2007 Resolution, observed this
suspect change of applications while the case
was pending before it and held:
The filing of the Financial or Technical
Assistance Agreement application is a clear
admission that the respondents are not capable
of conducting a large scale mining operation
and that they need the financial and technical
assistance of a foreign entity in their operation
that is why they sought the participation of
MBMI Resources, Inc. The participation of
MBMI in the corporation only proves the fact
that it is the Canadian company that will provide
the finances and the resources to operate the
mining areas for the greater benefit and interest
of the same and not the Filipino stockholders
who only have a less substantial financial stake
in the corporation.
xxxx
x x x The filing of the FTAA application on June
15, 2007, during the pendency of the case only
demonstrate the violations and lack of
qualification of the respondent corporations to
engage in mining. The filing of the FTAA
application conversion which is allowed foreign
corporation of the earlier MPSA is an admission
that indeed the respondent is not Filipino but
rather of foreign nationality who is disqualified
under the laws. Corporate documents of MBMI
Resources, Inc. furnished its stockholders in
their head office in Canada suggest that they
are conducting operation only through their local
counterparts.36
On October 1, 2010, the CA rendered a
Decision which partially granted the petition,
reversing and setting aside the September 10,
2008 and July 1, 2009 Orders of the MAB. In
the said Decision, the CA upheld the findings of
the POA of the DENR that the herein petitioners
are in fact foreign corporations thus a
recommendation of the rejection of their MPSA
applications were recommended to the
Secretary of the DENR. With respect to the
FTAA applications or conversion of the MPSA
applications to FTAAs, the CA deferred the
matter for the determination of the Secretary of
the DENR and the President of the Republic of
the Philippines.37
In their Motion for Reconsideration dated
October 26, 2010, petitioners prayed for the
dismissal of the petition asserting that on April
5, 2010, then President Gloria Macapagal-
Arroyo signed and issued in their favor FTAA
No. 05-2010-IVB, which rendered the petition
moot and academic. However, the CA, in a
Resolution dated February 15, 2011 denied
their motion for being a mere "rehash of their
claims and defenses."38 Standing firm on its
Decision, the CA affirmed the ruling that
petitioners are, in fact, foreign corporations. On
April 5, 2011, petitioners elevated the case to us
via a Petition for Review on Certiorari under
Rule 45, questioning the Decision of the CA.
Interestingly, the OP rendered a Decision dated
April 6, 2011, a day after this petition for review
was filed, cancelling and revoking the FTAAs,
quoting the Order of the POA and stating that
petitioners are foreign corporations since they
needed the financial strength of MBMI, Inc. in
order to conduct large scale mining operations.
The OP Decision also based the cancellation on
the misrepresentation of facts and the violation
of the "Small Scale Mining Law and
Environmental Compliance Certificate as well
as Sections 3 and 8 of the Foreign Investment
Act and E.O. 584."39 On July 6, 2011, the OP
issued a Resolution, denying the Motion for
Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated
October 10, 2011, made known to the Court the
fact of the OP’s Decision and Resolution. In
their Reply, petitioners chose to ignore the OP
Decision and continued to reuse their old
arguments claiming that they were granted
FTAAs and, thus, the case was moot.
Petitioners filed a Manifestation and Submission
dated October 19, 2012,40 wherein they
asserted that the present petition is moot since,
in a remarkable turn of events, MBMI was able
to sell/assign all its shares/interest in the
"holding companies" to DMCI Mining
Corporation (DMCI), a Filipino corporation and,
in effect, making their respective corporations
fully-Filipino owned.
Again, it is quite evident that petitioners have
been trying to have this case dismissed for
being "moot." Their final act, wherein MBMI was
able to allegedly sell/assign all its shares and
interest in the petitioner "holding companies" to
DMCI, only proves that they were in fact not
Filipino corporations from the start. The recent
divesting of interest by MBMI will not change
the stand of this Court with respect to the
nationality of petitioners prior the suspicious
change in their corporate structures. The new
documents filed by petitioners are factual
evidence that this Court has no power to verify.
The only thing clear and proved in this Court is
the fact that the OP declared that petitioner
corporations have violated several mining laws
and made misrepresentations and falsehood in
their applications for FTAA which lead to the
revocation of the said FTAAs, demonstrating
that petitioners are not beyond going against or
around the law using shifty actions and
strategies. Thus, in this instance, we can say
that their claim of mootness is moot in itself
because their defense of conversion of MPSAs
to FTAAs has been discredited by the OP
Decision.
Grandfather test
The main issue in this case is centered on the
issue of petitioners’ nationality, whether Filipino
or foreign. In their previous petitions, they had
been adamant in insisting that they were Filipino
corporations, until they submitted their
Manifestation and Submission dated October
19, 2012 where they stated the alleged change
of corporate ownership to reflect their Filipino
ownership. Thus, there is a need to determine
the nationality of petitioner corporations.
Basically, there are two acknowledged tests in
determining the nationality of a corporation: the
control test and the grandfather rule. Paragraph
7 of DOJ Opinion No. 020, Series of 2005,
adopting the 1967 SEC Rules which
implemented the requirement of the Constitution
and other laws pertaining to the controlling
interests in enterprises engaged in the
exploitation of natural resources owned by
Filipino citizens, provides:
Shares belonging to corporations or
partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered
as of Philippine nationality, but if the percentage
of Filipino ownership in the corporation or
partnership is less than 60%, only the number
of shares corresponding to such percentage
shall be counted as of Philippine nationality.
Thus, if 100,000 shares are registered in the
name of a corporation or partnership at least
60% of the capital stock or capital, respectively,
of which belong to Filipino citizens, all of the
shares shall be recorded as owned by Filipinos.
But if less than 60%, or say, 50% of the capital
stock or capital of the corporation or
partnership, respectively, belongs to Filipino
citizens, only 50,000 shares shall be counted as
owned by Filipinos and the other 50,000 shall
be recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No.
020, stating "shares belonging to corporations
or partnerships at least 60% of the capital of
which is owned by Filipino citizens shall be
considered as of Philippine nationality," pertains
to the control test or the liberal rule. On the
other hand, the second part of the DOJ Opinion
which provides, "if the percentage of the Filipino
ownership in the corporation or partnership is
less than 60%, only the number of shares
corresponding to such percentage shall be
counted as Philippine nationality," pertains to
the stricter, more stringent grandfather rule.
Prior to this recent change of events, petitioners
were constant in advocating the application of
the "control test" under RA 7042, as amended
by RA 8179, otherwise known as the Foreign
Investments Act (FIA), rather than using the
stricter grandfather rule. The pertinent provision
under Sec. 3 of the FIA provides:
SECTION 3. Definitions. - As used in this Act:
a.) The term Philippine national shall mean a
citizen of the Philippines; or a domestic
partnership or association wholly owned by the
citizens of the Philippines; a corporation
organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital
stock outstanding and entitled to vote is wholly
owned by Filipinos or a trustee of funds for
pension or other employee retirement or
separation benefits, where the trustee is a
Philippine national and at least sixty percent
(60%) of the fund will accrue to the benefit of
Philippine nationals: Provided, That were a
corporation and its non-Filipino stockholders
own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at
least sixty percent (60%) of the capital stock
outstanding and entitled to vote of each of both
corporations must be owned and held by
citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of
Directors, in order that the corporation shall be
considered a Philippine national. (emphasis
supplied)
The grandfather rule, petitioners reasoned, has
no leg to stand on in the instant case since the
definition of a "Philippine National" under Sec. 3
of the FIA does not provide for it. They further
claim that the grandfather rule "has been
abandoned and is no longer the applicable
rule."41 They also opined that the last portion of
Sec. 3 of the FIA admits the application of a
"corporate layering" scheme of corporations.
Petitioners claim that the clear and
unambiguous wordings of the statute preclude
the court from construing it and prevent the
court’s use of discretion in applying the law.
They said that the plain, literal meaning of the
statute meant the application of the control test
is obligatory.
We disagree. "Corporate layering" is admittedly
allowed by the FIA; but if it is used to
circumvent the Constitution and pertinent laws,
then it becomes illegal. Further, the
pronouncement of petitioners that the
grandfather rule has already been abandoned
must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters,
minerals, coal, petroleum and other mineral oils,
all forces of potential energy, fisheries, forests
or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. With
the exception of agricultural lands, all other
natural resources shall not be alienated. The
exploration, development, and utilization of
natural resources shall be under the full control
and supervision of the State. The State may
directly undertake such activities, or it may enter
into co-production, joint venture or production-
sharing agreements with Filipino citizens, or
corporations or associations at least sixty per
centum of whose capital is owned by such
citizens. Such agreements may be for a period
not exceeding twenty-five years, renewable for
not more than twenty-five years, and under
such terms and conditions as may be provided
by law.
xxxx
The President may enter into agreements with
Foreign-owned corporations involving either
technical or financial assistance for large-scale
exploration, development, and utilization of
minerals, petroleum, and other mineral oils
according to the general terms and conditions
provided by law, based on real contributions to
the economic growth and general welfare of the
country. In such agreements, the State shall
promote the development and use of local
scientific and technical resources. (emphasis
supplied)
The emphasized portion of Sec. 2 which
focuses on the State entering into different
types of agreements for the exploration,
development, and utilization of natural
resources with entities who are deemed Filipino
due to 60 percent ownership of capital is
pertinent to this case, since the issues are
centered on the utilization of our country’s
natural resources or specifically, mining. Thus,
there is a need to ascertain the nationality of
petitioners since, as the Constitution so
provides, such agreements are only allowed
corporations or associations "at least 60 percent
of such capital is owned by such citizens." The
deliberations in the Records of the 1986
Constitutional Commission shed light on how a
citizenship of a corporation will be determined:
Mr. BENNAGEN: Did I hear right that the
Chairman’s interpretation of an independent
national economy is freedom from undue
foreign control? What is the meaning of undue
foreign control?
MR. VILLEGAS: Undue foreign control is
foreign control which sacrifices national
sovereignty and the welfare of the Filipino in the
economic sphere.
MR. BENNAGEN: Why does it have to be
qualified still with the word "undue"? Why not
simply freedom from foreign control? I think that
is the meaning of independence, because as
phrased, it still allows for foreign control.
MR. VILLEGAS: It will now depend on the
interpretation because if, for example, we retain
the 60/40 possibility in the cultivation of natural
resources, 40 percent involves some control;
not total control, but some control.
MR. BENNAGEN: In any case, I think in due
time we will propose some amendments.
MR. VILLEGAS: Yes. But we will be open to
improvement of the phraseology.
Mr. BENNAGEN: Yes.
Thank you, Mr. Vice-President.
xxxx
MR. NOLLEDO: In Sections 3, 9 and 15, the
Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-
40 in Section 9, and 2/3-1/3 in Section 15.
MR. VILLEGAS: That is right.
MR. NOLLEDO: In teaching law, we are always
faced with the question: ‘Where do we base the
equity requirement, is it on the authorized
capital stock, on the subscribed capital stock, or
on the paid-up capital stock of a corporation’?
Will the Committee please enlighten me on
this?
MR. VILLEGAS: We have just had a long
discussion with the members of the team from
the UP Law Center who provided us with a
draft. The phrase that is contained here which
we adopted from the UP draft is ‘60 percent of
the voting stock.’
MR. NOLLEDO: That must be based on the
subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall
be entitled to vote.
MR. VILLEGAS: That is right.
MR. NOLLEDO: Thank you.
With respect to an investment by one
corporation in another corporation, say, a
corporation with 60-40 percent equity invests in
another corporation which is permitted by the
Corporation Code, does the Committee adopt
the grandfather rule?
MR. VILLEGAS: Yes, that is the understanding
of the Committee.
MR. NOLLEDO: Therefore, we need additional
Filipino capital?
MR. VILLEGAS: Yes.42 (emphasis supplied)
It is apparent that it is the intention of the
framers of the Constitution to apply the
grandfather rule in cases where corporate
layering is present.
Elementary in statutory construction is when
there is conflict between the Constitution and a
statute, the Constitution will prevail. In this
instance, specifically pertaining to the provisions
under Art. XII of the Constitution on National
Economy and Patrimony, Sec. 3 of the FIA will
have no place of application. As decreed by the
honorable framers of our Constitution, the
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020,
Series of 2005 provides:
The above-quoted SEC Rules provide for the
manner of calculating the Filipino interest in a
corporation for purposes, among others, of
determining compliance with nationality
requirements (the ‘Investee Corporation’). Such
manner of computation is necessary since the
shares in the Investee Corporation may be
owned both by individual stockholders
(‘Investing Individuals’) and by corporations and
partnerships (‘Investing Corporation’). The said
rules thus provide for the determination of
nationality depending on the ownership of the
Investee Corporation and, in certain instances,
the Investing Corporation.
Under the above-quoted SEC Rules, there are
two cases in determining the nationality of the
Investee Corporation. The first case is the
‘liberal rule’, later coined by the SEC as the
Control Test in its 30 May 1990 Opinion, and
pertains to the portion in said Paragraph 7 of
the 1967 SEC Rules which states, ‘(s)hares
belonging to corporations or partnerships at
least 60% of the capital of which is owned by
Filipino citizens shall be considered as of
Philippine nationality.’ Under the liberal Control
Test, there is no need to further trace the
ownership of the 60% (or more) Filipino
stockholdings of the Investing Corporation since
a corporation which is at least 60% Filipino-
owned is considered as Filipino.
The second case is the Strict Rule or the
Grandfather Rule Proper and pertains to the
portion in said Paragraph 7 of the 1967 SEC
Rules which states, "but if the percentage of
Filipino ownership in the corporation or
partnership is less than 60%, only the number
of shares corresponding to such percentage
shall be counted as of Philippine nationality."
Under the Strict Rule or Grandfather Rule
Proper, the combined totals in the Investing
Corporation and the Investee Corporation must
be traced (i.e., "grandfathered") to determine
the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the
shares must first be traced to the level of the
Investing Corporation and added to the shares
directly owned in the Investee Corporation x x x.
xxxx
In other words, based on the said SEC Rule
and DOJ Opinion, the Grandfather Rule or the
second part of the SEC Rule applies only when
the 60-40 Filipino-foreign equity ownership is in
doubt (i.e., in cases where the joint venture
corporation with Filipino and foreign
stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint
venture corporation which is either 60-40%
Filipino-alien or the 59% less Filipino). Stated
differently, where the 60-40 Filipino- foreign
equity ownership is not in doubt, the
Grandfather Rule will not apply. (emphasis
supplied)
After a scrutiny of the evidence extant on
record, the Court finds that this case calls for
the application of the grandfather rule since, as
ruled by the POA and affirmed by the OP, doubt
prevails and persists in the corporate ownership
of petitioners. Also, as found by the CA, doubt is
present in the 60-40 Filipino equity ownership of
petitioners Narra, McArthur and Tesoro, since
their common investor, the 100% Canadian
corporation––MBMI, funded them. However,
petitioners also claim that there is "doubt" only
when the stockholdings of Filipinos are less
than 60%.43
The assertion of petitioners that "doubt" only
exists when the stockholdings are less than
60% fails to convince this Court. DOJ Opinion
No. 20, which petitioners quoted in their petition,
only made an example of an instance where
"doubt" as to the ownership of the corporation
exists. It would be ludicrous to limit the
application of the said word only to the
instances where the stockholdings of non-
Filipino stockholders are more than 40% of the
total stockholdings in a corporation. The
corporations interested in circumventing our
laws would clearly strive to have "60% Filipino
Ownership" at face value. It would be senseless
for these applying corporations to state in their
respective articles of incorporation that they
have less than 60% Filipino stockholders since
the applications will be denied instantly. Thus,
various corporate schemes and layerings are
utilized to circumvent the application of the
Constitution.
Obviously, the instant case presents a situation
which exhibits a scheme employed by
stockholders to circumvent the law, creating a
cloud of doubt in the Court’s mind. To
determine, therefore, the actual participation,
direct or indirect, of MBMI, the grandfather rule
must be used.
McArthur Mining, Inc.
To establish the actual ownership, interest or
participation of MBMI in each of petitioners’
corporate structure, they have to be
"grandfathered."
 As previously discussed, McArthur acquired its On September 9, 2004, the Company and
MPSA application from MMC, which acquired its Olympic Mines & Development Corporation
Development
application from SMMI. McArthur has a capital ("Olympic") entered into a series of agreements
stock of ten million pesos (PhP 10,000,000) including a Property Purchase and
divided into 10,000 common shares at one
Corp. Development Agreement (the Transaction
thousand pesos (PhP 1,000) per share, Documents) with respect to three nickel laterite
MBMI
subscribed to by the following: 44 Resources, Canadian 3,331 PhP 3,331,000.00 PhP 2,803,900.00
properties in Palawan, Philippines (the "Olympic
Properties"). The Transaction Documents
Inc. effectively establish a joint venture between the
me Nationality Number of Shares Amount Subscribed Amount Paid Company and Olympic for purposes of
Amanti Limson Filipino 1 PhP 1,000.00 PhP 1,000.00
developing the Olympic Properties. The
Mining Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
Company holds directly and indirectly an initial
Fernando B. Filipino 1 PhP 1,000.00 60% PhP 1,000.00
interest in the joint venture. Under certain
urces, Inc. Canadian 3,998 PhP 3,998,000.0 PhP 1,878,174.60 circumstances and upon achieving certain
Esguerra milestones, the Company may earn up to a
azar Filipino 1 PhP 1,000.00 PhP 1,000.00 100% interest, subject to a 2.5% net revenue
Lauro Salazar Filipino 1 PhP 1,000.00 PhP471,000.00
royalty. (emphasis supplied)
Esguerra Filipino 1 PhP 1,000.00 PhP 1,000.00
Emmanuel G. Filipino 1 PhP 1,000.00 PhP 1,000.00
gcaoili Filipino 1 PhP 1,000.00 PhP 1,000.00 Thus, as demonstrated in this first corporation,
HernandoPhP 1,000.00 McArthur, when it is "grandfathered," company
ason American 1 PhP 1,000.00 layering was utilized by MBMI to gain control
wkell Canadian 1 Michael PhP
T. Mason
1,000.00 American PhP 1,000.001 PhP 1,000.00 over McArthur.
PhP 1,000.00It is apparent that MBMI has
more than 60% or more equity interest in
Total 10,000 Kenneth
PhPCawkell Canadian
10,000,000.00 1
PhP 2,708,174.60 PhP 1,000.00 PhP 1,000.00
McArthur, making the latter a foreign
(emphasis supplied) corporation.
Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00

Tesoro Mining and Development, Inc.

Interestingly, looking at the corporate structure
of MMC, we take note that it has a similar
structure and composition as McArthur. In fact,
it would seem that MBMI is also a major
investor and "controls"45 MBMI and also, similar
nominal shareholders were present, i.e.
Fernando B. Esguerra (Esguerra), Lauro L.
Salazar (Salazar), Michael T. Mason (Mason)
and Kenneth Cawkell (Cawkell):
Madridejos Mining Corporation
e Nationality Number of Shares Amount Subscribed
nes & Filipino 6,663 PhP 6,663,000.00
(emphasis supplied)
Tesoro, which acquired its MPSA application
Noticeably, Olympic Mines & Development from SMMI, has a capital stock of ten million
Corporation (Olympic) did not pay any amount pesos (PhP 10,000,000) divided into ten
with respect to the number of shares they thousand (10,000) common shares at PhP
subscribed to in the corporation, which is quite 1,000 per share, as demonstrated below:
absurd since Olympic is the major stockholder
in MMC. MBMI’s 2006 Annual Report sheds [[reference
light on why Olympic failed to pay any amount = http://sc.judiciary.gov.ph/pdf/web/viewer.html?
with respect to the number of shares it file=/jurisprudence/2014/april2014/195580.pdf]]
subscribed to. It states that Olympic entered
into joint venture agreements with several
Philippine
Amountcompanies,
Paid wherein it holds directly Name Nationality Number of
and indirectly a 60% effective equity interest in
PhP 0Properties.46 Quoting the said
the Olympic
Annual report: Shares S
 [[reference glaring similarity between SMMI and MMC’s
Sara Marie Filipino 5,997 PhP 5,997,000.00 PhP 825,000.00
= http://sc.judiciary.gov.ph/pdf/web/viewer.html? corporate structure. Again, the presence of
file=/jurisprudence/2014/april2014/195580.pdf]] identical stockholders, namely: Olympic, MBMI,
Mining, Inc. Amanti Limson (Limson), Esguerra, Salazar,
Hernando, Mason and Cawkell. The figures
MBMI Canadian 3,998 PhPName
3,998,000.00 Nationality Number ofunder the headings
PhP 1,878,174.60 Amount "Nationality," "Number
Amount Paid
of
Shares," "Amount Subscribed," and "Amount
Resources, Inc. Shares Paid" areSubscribed
exactly the same except for the
amount paid by MBMI which now reflects the
Lauro L. Salazar Filipino 1 Olympic
PhPMines &
1,000.00 PhP 1,000.00 6,663 amount
Filipino of two
PhP million seven hundred ninety
6,663,000.00 PhP 0 four
thousand pesos (PhP 2,794,000). Oddly, the
total value of the amount paid is two million
Fernando B. Filipino 1 PhP 1,000.00
Development PhP 1,000.00
eight hundred nine thousand nine hundred
pesos (PhP 2,809,900).
Esguerra Corp.
Accordingly, after "grandfathering" petitioner
Manuel A. Filipino 1 MBMI PhP 1,000.00
Resources, PhP 1,000.00 3,331
Canadian TesoroPhP
and3,331,000.00
factoring in Olympic’sPhP 2,794,000.00
participation
in SMMI’s corporate structure, it is clear that
Agcaoili Inc. MBMI is in control of Tesoro and owns 60% or
more equity interest in Tesoro. This makes
Michael T. Mason American 1 AmantiPhP 1,000.00
Limson PhP 1,000.00
Filipino 1 petitioner Tesoro
PhP a non-Filipino corporation
1,000.00 PhP 1,000.00and,
thus, disqualifies it to participate in the
Kenneth Cawkell Canadian 1 PhPB.1,000.00
Fernando PhP 1,000.00
Filipino 1 exploitation,
PhP utilization
1,000.00 and development of our
PhP 1,000.00
natural resources.
Total 10,000 PhP 10,000,000.00 PhP 2,708,174.60
Esguerra
Narra Nickel Mining and Development
Lauro Salazar (emphasis
Filipino supplied) 1 Corporation
PhP 1,000.00 PhP 1,000.00

Emmanuel G. Filipino 1 Moving onPhP to 1,000.00

the last petitioner, Narra, which is
PhP 1,000.00
Except for the name "Sara Marie Mining, Inc.," the transferee and assignee of PLMDC’s MPSA
the table above shows exactly the same figures application, whose corporate structure’s
as the corporate structure of petitioner Hernando
arrangement is similar to that of the first two
McArthur, down to the last centavo. All the other petitioners discussed. The capital stock of Narra
shareholders are the same: MBMI, Salazar, Michael T. Mason American 1 PhP 1,000.00 PhP 1,000.00
is ten million pesos (PhP 10,000,000), which is
Esguerra, Agcaoili, Mason and Cawkell. The divided into ten thousand common shares
figures under "Nationality," "Number of Shares," Kenneth Cawkell Canadian 1 (10,000)PhP
at one1,000.00
thousand pesos (PhPPhP 1,000)
1,000.00
"Amount Subscribed," and "Amount Paid" are per share, shown as follows:
exactly the same. Delving deeper, we scrutinize Total 10,000 PhP 10,000,000.00 PhP 2,809,900.00
SMMI’s corporate structure:
[[reference
(emphasis supplied)
= http://sc.judiciary.gov.ph/pdf/web/viewer.html?
Sara Marie Mining, Inc. file=/jurisprudence/2014/april2014/195580.pdf]]
After subsequently studying SMMI’s corporate
structure, it is not farfetched for us to spot the
 Yet again, the usual players in petitioners’
Name Nationality Number of Amount Total
Amount Paid 10,000 PhP 10,000,000.00 PhP 2,800,000.00
corporate structures are present. Similarly, the
(emphasis supplied)
amount of money paid by the 2nd tier majority
Shares Subscribed stock holder, in this case, Palawan Alpha South
Resources and Development Corp. (PASRDC),
Again, MBMI, along with other nominal
Patricia Louise Filipino 5,997 PhP 5,997,000.00 PhP 1,677,000.00 is zero.
stockholders, i.e., Mason, Agcaoili and
Esguerra, is present in this corporate structure.
Mining & Studying MBMI’s Summary of Significant
Accounting Policies dated October 31, 2005
Patricia Louise Mining & Development
Development explains the reason behind the intricate
Corporation
corporate layering that MBMI immersed itself in:
Corp. Using the grandfather method, we further look
JOINT VENTURES The Company’s ownership
and examine PLMDC’s corporate structure:
MBMI interests in various mining ventures engaged in
Canadian 3,998 PhP 3,996,000.00 PhP 1,116,000.00
the acquisition, exploration and development of
Name Nationality Number of Amount mineralAmount
properties in the Philippines is
Paid
Resources, Inc. Shares Subscribeddescribed as follows:
Higinio C. Filipino
Palawan 1
Alpha South Resources PhP 1,000.00
Filipino PhP 1,000.00
6,596 PhP 6,596,000.00 PhP 0
(a) Olympic Group
Development Corporation
Mendoza, Jr. MBMI Resources, Canadian 3,396 PhP 3,396,000.00 PhPcompanies holding the Olympic
The Philippine
2,796,000.00
Property, and the ownership and interests
Henry E. Filipino 1 PhP 1,000.00 PhP 1,000.00 therein, are as follows:
Inc.
Fernandez Higinio C. Mendoza, Jr. Filipino 1 PhP 1,000.00Olympic-
PhP 1,000.00 (the "Olympic Group")
Philippines
Manuel A. Fernando B. Esguerra
Filipino 1 Filipino
PhP 1,000.00 1 PhP 1,000.00
PhP 1,000.00 PhP 1,000.00
Sara Marie Mining Properties Ltd. ("Sara
Henry E. Fernandez Filipino 1 PhP 1,000.00Marie")PhP 1,000.00
33.3%
Agcaoili
Lauro L. Salazar Filipino 1 PhP 1,000.00 PhP 1,000.00
Ma. Elena A. Filipino 1 PhP 1,000.00 PhP 1,000.00 Tesoro Mining & Development, Inc. (Tesoro)
Manuel A. Agcaoili Filipino 1 PhP 1,000.0060.0% PhP 1,000.00

Bocalan Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00

Pursuant to the Olympic joint venture
Michael T. Mason American 1 PhP 1,000.00agreement
PhP the1,000.00
Company holds directly and
Bayani H. Agabin Filipino 1 PhP 1,000.00 PhP 1,000.00
indirectly an effective equity interest in the
Kenneth Cawkell Canadian 1 PhP 1,000.00OlympicPhP 1,000.00
Property of 60.0%. Pursuant to a
Robert L. American 1 PhP 1,000.00 PhP 1,000.00 shareholders’ agreement, the Company
Total 10,000 PhP PhP
exercises
10,000,000.00 joint control
2,708,174.60 over the companies in the
McCurdy Olympic (emphasis
Group.
supplied)
Kenneth Cawkell Canadian 1 PhP 1,000.00 PhP 1,000.00 (b) Alpha Group
The Philippine companies holding the Alpha
Property, and the ownership interests therein,
are as follows:
Alpha- Philippines (the "Alpha Group")
Patricia Louise Mining Development Inc.
("Patricia") 34.0%
Narra Nickel Mining & Development Corporation
(Narra) 60.4%
Under a joint venture agreement the Company
holds directly and indirectly an effective equity
interest in the Alpha Property of 60.4%.
Pursuant to a shareholders’ agreement, the
Company exercises joint control over the
companies in the Alpha Group.48 (emphasis
supplied)
Concluding from the above-stated facts, it is
quite safe to say that petitioners McArthur,
Tesoro and Narra are not Filipino since MBMI, a
100% Canadian corporation, owns 60% or more
of their equity interests. Such conclusion is
derived from grandfathering petitioners’
corporate owners, namely: MMI, SMMI and
PLMDC. Going further and adding to the
picture, MBMI’s Summary of Significant
Accounting Policies statement– –regarding the
"joint venture" agreements that it entered into
with the "Olympic" and "Alpha" groups––
involves SMMI, Tesoro, PLMDC and Narra.
Noticeably, the ownership of the "layered"
corporations boils down to MBMI, Olympic or
corporations under the "Alpha" group wherein
MBMI has joint venture agreements with,
practically exercising majority control over the
corporations mentioned. In effect, whether
looking at the capital structure or the underlying
relationships between and among the
corporations, petitioners are NOT Filipino
nationals and must be considered foreign since
60% or more of their capital stocks or equity
interests are owned by MBMI.
Application of the res inter alios acta rule
Petitioners question the CA’s use of the
exception of the res inter alios acta or the
"admission by co-partner or agent" rule and
"admission by privies" under the Rules of Court
in the instant case, by pointing out that
statements made by MBMI should not be
admitted in this case since it is not a party to the
case and that it is not a "partner" of petitioners.
Secs. 29 and 31, Rule 130 of the Revised Rules
of Court provide:
Sec. 29. Admission by co-partner or agent.- The
act or declaration of a partner or agent of the
party within the scope of his authority and
during the existence of the partnership or
agency, may be given in evidence against such
party after the partnership or agency is shown
by evidence other than such act or declaration
itself. The same rule applies to the act or
declaration of a joint owner, joint debtor, or
other person jointly interested with the party.
Sec. 31. Admission by privies.- Where one
derives title to property from another, the act,
declaration, or omission of the latter, while
holding the title, in relation to the property, is
evidence against the former.
Petitioners claim that before the above-
mentioned Rule can be applied to a case, "the
partnership relation must be shown, and that
proof of the fact must be made by evidence
other than the admission itself."49 Thus,
petitioners assert that the CA erred in finding
that a partnership relationship exists between
them and MBMI because, in fact, no such
partnership exists.
Partnerships vs. joint venture agreements
Petitioners claim that the CA erred in applying
Sec. 29, Rule 130 of the Rules by stating that
"by entering into a joint venture, MBMI have a
joint interest" with Narra, Tesoro and McArthur.
They challenged the conclusion of the CA which
pertains to the close characteristics of
"partnerships" and "joint venture agreements."
Further, they asserted that before this particular
partnership can be formed, it should have been
formally reduced into writing since the capital
involved is more than three thousand pesos
(PhP 3,000). Being that there is no evidence of
written agreement to form a partnership
between petitioners and MBMI, no partnership
was created.
We disagree.
A partnership is defined as two or more persons
who bind themselves to contribute money,
property, or industry to a common fund with the
intention of dividing the profits among
themselves.50 On the other hand, joint ventures
have been deemed to be "akin" to partnerships
since it is difficult to distinguish between joint
ventures and partnerships. Thus:
[T]he relations of the parties to a joint venture
and the nature of their association are so similar
and closely akin to a partnership that it is
ordinarily held that their rights, duties, and
liabilities are to be tested by rules which are
closely analogous to and substantially the
same, if not exactly the same, as those which
govern partnership. In fact, it has been said that
the trend in the law has been to blur the
distinctions between a partnership and a joint
venture, very little law being found applicable to
one that does not apply to the other.51
Though some claim that partnerships and joint
ventures are totally different animals, there are
very few rules that differentiate one from the
other; thus, joint ventures are deemed "akin" or
similar to a partnership. In fact, in joint venture
agreements, rules and legal incidents governing
partnerships are applied.52
Accordingly, culled from the incidents and
records of this case, it can be assumed that the
relationships entered between and among
petitioners and MBMI are no simple "joint
venture agreements." As a rule, corporations
are prohibited from entering into partnership
agreements; consequently, corporations enter
into joint venture agreements with other
corporations or partnerships for certain
transactions in order to form "pseudo
partnerships."
Obviously, as the intricate web of "ventures"
entered into by and among petitioners and
MBMI was executed to circumvent the legal
prohibition against corporations entering into
partnerships, then the relationship created
should be deemed as "partnerships," and the
laws on partnership should be applied. Thus, a
joint venture agreement between and among
corporations may be seen as similar to
partnerships since the elements of partnership
are present.
Considering that the relationships found
between petitioners and MBMI are considered
to be partnerships, then the CA is justified in
applying Sec. 29, Rule 130 of the Rules by
stating that "by entering into a joint venture,
MBMI have a joint interest" with Narra, Tesoro
and McArthur.
Panel of Arbitrators’ jurisdiction
We affirm the ruling of the CA in declaring that
the POA has jurisdiction over the instant case.
The POA has jurisdiction to settle disputes over
rights to mining areas which definitely involve
the petitions filed by Redmont against
petitioners Narra, McArthur and Tesoro.
Redmont, by filing its petition against
petitioners, is asserting the right of Filipinos
over mining areas in the Philippines against
alleged foreign-owned mining corporations.
Such claim constitutes a "dispute" found in Sec.
77 of RA 7942:
Within thirty (30) days, after the submission of
the case by the parties for the decision, the
panel shall have exclusive and original
jurisdiction to hear and decide the following:
(a) Disputes involving rights to mining
areas
(b) Disputes involving mineral
agreements or permits
We held in Celestial Nickel Mining Exploration
Corporation v. Macroasia Corp.:53
The phrase "disputes involving rights to mining
areas" refers to any adverse claim, protest, or
opposition to an application for mineral
agreement. The POA therefore has the
jurisdiction to resolve any adverse claim,
protest, or opposition to a pending application
for a mineral agreement filed with the
concerned Regional Office of the MGB. This is
clear from Secs. 38 and 41 of the DENR AO 96-
40, which provide:
Sec. 38.
xxxx
Within thirty (30) calendar days from the last
date of publication/posting/radio
announcements, the authorized officer(s) of the
concerned office(s) shall issue a certification(s)
that the publication/posting/radio announcement
have been complied with. Any adverse claim,
protest, opposition shall be filed directly, within
thirty (30) calendar days from the last date of
publication/posting/radio announcement, with
the concerned Regional Office or through any
concerned PENRO or CENRO for filing in the
concerned Regional Office for purposes of its
resolution by the Panel of Arbitrators pursuant
to the provisions of this Act and these
implementing rules and regulations. Upon final
resolution of any adverse claim, protest or
opposition, the Panel of Arbitrators shall
likewise issue a certification to that effect within
five (5) working days from the date of finality of
resolution thereof. Where there is no adverse
claim, protest or opposition, the Panel of
Arbitrators shall likewise issue a Certification to
that effect within five working days therefrom.
xxxx
No Mineral Agreement shall be approved unless
the requirements under this Section are fully
complied with and any adverse
claim/protest/opposition is finally resolved by
the Panel of Arbitrators.
Sec. 41.
xxxx
Within fifteen (15) working days form the receipt
of the Certification issued by the Panel of
Arbitrators as provided in Section 38 hereof, the
concerned Regional Director shall initially
evaluate the Mineral Agreement applications in
areas outside Mineral reservations. He/She
shall thereafter endorse his/her findings to the
Bureau for further evaluation by the Director
within fifteen (15) working days from receipt of
forwarded documents. Thereafter, the Director
shall endorse the same to the secretary for
consideration/approval within fifteen working
days from receipt of such endorsement.
In case of Mineral Agreement applications in
areas with Mineral Reservations, within fifteen
(15) working days from receipt of the
Certification issued by the Panel of Arbitrators
as provided for in Section 38 hereof, the same
shall be evaluated and endorsed by the Director
to the Secretary for consideration/approval
within fifteen days from receipt of such
endorsement. (emphasis supplied)
It has been made clear from the aforecited
provisions that the "disputes involving rights to
mining areas" under Sec. 77(a) specifically refer
only to those disputes relative to the
applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims,
protest, or oppositions to a mining right
application is further elucidated by Secs. 219
and 43 of DENR AO 95-936, which read:
Sec. 219. Filing of Adverse
Claims/Conflicts/Oppositions.- Notwithstanding
the provisions of Sections 28, 43 and 57 above,
any adverse claim, protest or opposition
specified in said sections may also be filed
directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest
or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral
Agreement.-
xxxx
The Regional Director or concerned Regional
Director shall also cause the posting of the
application on the bulletin boards of the Bureau,
concerned Regional office(s) and in the
concerned province(s) and municipality(ies),
copy furnished the barangays where the
proposed contract area is located once a week
for two (2) consecutive weeks in a language
generally understood in the locality. After forty-
five (45) days from the last date of
publication/posting has been made and no
adverse claim, protest or opposition was filed
within the said forty-five (45) days, the
concerned offices shall issue a certification that
publication/posting has been made and that no
adverse claim, protest or opposition of whatever
nature has been filed. On the other hand, if
there be any adverse claim, protest or
opposition, the same shall be filed within forty-
five (45) days from the last date of
publication/posting, with the Regional Offices
concerned, or through the Department’s
Community Environment and Natural
Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers
(PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However
previously published valid and subsisting mining
claims are exempted from posted/posting
required under this Section.
No mineral agreement shall be approved unless
the requirements under this section are fully
complied with and any opposition/adverse claim
is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis
supplied.)
It has been made clear from the aforecited
provisions that the "disputes involving rights to
mining areas" under Sec. 77(a) specifically refer
only to those disputes relative to the
applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims,
protest, or oppositions to a mining right
application is further elucidated by Secs. 219
and 43 of DENRO AO 95-936, which reads:
Sec. 219. Filing of Adverse
Claims/Conflicts/Oppositions.- Notwithstanding
the provisions of Sections 28, 43 and 57 above,
any adverse claim, protest or opposition
specified in said sections may also be filed
directly with the Panel of Arbitrators within the
concerned periods for filing such claim, protest
or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral
Agreement Application.-
xxxx
The Regional Director or concerned Regional
Director shall also cause the posting of the
application on the bulletin boards of the Bureau,
concerned Regional office(s) and in the
concerned province(s) and municipality(ies),
copy furnished the barangays where the
proposed contract area is located once a week
for two (2) consecutive weeks in a language
generally understood in the locality. After forty-
five (45) days from the last date of
publication/posting has been made and no
adverse claim, protest or opposition was filed
within the said forty-five (45) days, the
concerned offices shall issue a certification that
publication/posting has been made and that no
adverse claim, protest or opposition of whatever
nature has been filed. On the other hand, if
there be any adverse claim, protest or
opposition, the same shall be filed within forty-
five (45) days from the last date of
publication/posting, with the Regional offices
concerned, or through the Department’s
Community Environment and Natural
Resources Officers (CENRO) or Provincial
Environment and Natural Resources Officers
(PENRO), to be filed at the Regional Office for
resolution of the Panel of Arbitrators. However,
previously published valid and subsisting mining
claims are exempted from posted/posting
required under this Section.
No mineral agreement shall be approved unless
the requirements under this section are fully
complied with and any opposition/adverse claim
is dealt with in writing by the Director and
resolved by the Panel of Arbitrators. (Emphasis
supplied.)
These provisions lead us to conclude that the
power of the POA to resolve any adverse claim,
opposition, or protest relative to mining rights
under Sec. 77(a) of RA 7942 is confined only to
adverse claims, conflicts and oppositions
relating to applications for the grant of mineral
rights.
POA’s jurisdiction is confined only to resolutions
of such adverse claims, conflicts and
oppositions and it has no authority to approve or
reject said applications. Such power is vested in
the DENR Secretary upon recommendation of
the MGB Director. Clearly, POA’s jurisdiction
over "disputes involving rights to mining areas"
has nothing to do with the cancellation of
existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the
POA unquestionably has jurisdiction to resolve
disputes over MPSA applications subject of
Redmont’s petitions. However, said jurisdiction
does not include either the approval or rejection
of the MPSA applications, which is vested only
upon the Secretary of the DENR. Thus, the
finding of the POA, with respect to the rejection
of petitioners’ MPSA applications being that
they are foreign corporation, is valid.
Justice Marvic Mario Victor F. Leonen, in his
Dissent, asserts that it is the regular courts, not
the POA, that has jurisdiction over the MPSA
applications of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is
determined by the statute in force at the time of
the commencement of the action.54
Sec. 19, Batas Pambansa Blg. 129 or "The
Judiciary Reorganization
Act of 1980" reads:
Sec. 19. Jurisdiction in Civil Cases.—Regional
Trial Courts shall exercise exclusive original
jurisdiction:
1. In all civil actions in which the subject of the
litigation is incapable of pecuniary estimation.
On the other hand, the jurisdiction of POA is
unequivocal from Sec. 77 of RA 7942:
Section 77. Panel of Arbitrators.—
x x x Within thirty (30) days, after the
submission of the case by the parties
for the decision, the panel shall have
exclusive and original jurisdiction to
hear and decide the following:
(c) Disputes involving rights to mining
areas
(d) Disputes involving mineral
agreements or permits
It is clear that POA has exclusive and original
jurisdiction over any and all disputes involving
rights to mining areas. One such dispute is an
MPSA application to which an adverse claim,
protest or opposition is filed by another
interested applicant.1âwphi1 In the case at bar,
the dispute arose or originated from MPSA
applications where petitioners are asserting
their rights to mining areas subject of their
respective MPSA applications. Since
respondent filed 3 separate petitions for the
denial of said applications, then a controversy
has developed between the parties and it is
POA’s jurisdiction to resolve said disputes.
Moreover, the jurisdiction of the RTC involves
civil actions while what petitioners filed with the
DENR Regional Office or any concerned
DENRE or CENRO are MPSA applications.
Thus POA has jurisdiction.
Furthermore, the POA has jurisdiction over the
MPSA applications under the doctrine of
primary jurisdiction. Euro-med Laboratories v.
Province of Batangas55 elucidates:
The doctrine of primary jurisdiction holds that if
a case is such that its determination requires
the expertise, specialized training and
knowledge of an administrative body, relief must
first be obtained in an administrative proceeding
before resort to the courts is had even if the
matter may well be within their proper
jurisdiction.
Whatever may be the decision of the POA will
eventually reach the court system via a resort to
the CA and to this Court as a last recourse.
Selling of MBMI’s shares to DMCI
As stated before, petitioners’ Manifestation and
Submission dated October 19, 2012 would want
us to declare the instant petition moot and corporation, then it may apply the "grandfather
academic due to the transfer and conveyance of rule."
all the shareholdings and interests of MBMI to
DMCI, a corporation duly organized and existing WHEREFORE, premises considered, the
under Philippine laws and is at least 60% instant petition is DENIED. The assailed Court
Philippine-owned.56 Petitioners reasoned that of Appeals Decision dated October 1, 2010 and
they now cannot be considered as foreign- Resolution dated February 15, 2011 are hereby
owned; the transfer of their shares supposedly AFFIRMED.
cured the "defect" of their previous nationality.
They claimed that their current FTAA contract
with the State should stand since "even wholly- SO ORDERED.
owned foreign corporations can enter into an
FTAA with the State."57Petitioners stress that
there should no longer be any issue left as
regards their qualification to enter into FTAA
contracts since they are qualified to engage in
mining activities in the Philippines. Thus,
whether the "grandfather rule" or the "control
test" is used, the nationalities of petitioners
cannot be doubted since it would pass both
tests.

The sale of the MBMI shareholdings to DMCI

does not have any bearing in the instant case
and said fact should be disregarded. The
manifestation can no longer be considered by
us since it is being tackled in G.R. No. 202877
pending before this Court.1âwphi1 Thus, the
question of whether petitioners, allegedly a
Philippine-owned corporation due to the sale of
MBMI's shareholdings to DMCI, are allowed to
enter into FTAAs with the State is a non-issue in
this case.

In ending, the "control test" is still the prevailing

mode of determining whether or not a
corporation is a Filipino corporation, within the
ambit of Sec. 2, Art. II of the 1987 Constitution,
entitled to undertake the exploration,
development and utilization of the natural
resources of the Philippines. When in the mind
of the Court there is doubt, based on the
attendant facts and circumstances of the case,
in the 60-40 Filipino-equity ownership in the
 EN BANC
[G.R. No. L-32409. February 27,
1971.]
BACHE & CO. (PHIL.), INC. and
FREDERICK E.
SEGGERMAN, Petitioners, v. HON.
JUDGE VIVENCIO M. RUIZ, MISAEL P.
VERA, in his capacity as
Commissioner of Internal Revenue,
ARTURO LOGRONIO, RODOLFO DE
LEON, GAVINO VELASQUEZ, MIMIR
DELLOSA, NICANOR ALCORDO, JOHN
DOE, JOHN DOE, JOHN DOE, and
JOHN DOE, Respondents.
San Juan, Africa, Gonzales & San
Agustin, for Petitioners.
Solicitor General Felix Q. Antonio,
Assistant Solicitor General Crispin V .
Bautista, Solicitor Pedro A. Ramirez
and Special Attorney Jaime M. Maza
for Respondents.
DECISION
VILLAMOR, J.:
This is an original action of certiorari,
prohibition and mandamus, with prayer
for a writ of preliminary mandatory and
prohibitory injunction. In their petition
Bache & Co. (Phil.), Inc., a corporation
duly organized and existing under the
laws of the Philippines, and its President,
Frederick E. Seggerman, pray this Court
to declare null and void Search Warrant
No. 2-M-70 issued by respondent Judge
on February 25, 1970; to order
respondents to desist from enforcing the
same and/or keeping the documents,
papers and effects seized by virtue
thereof, as well as from enforcing the tax
assessments on petitioner corporation
alleged by petitioners to have been made
on the basis of the said documents,
papers and effects, and to order the
return of the latter to petitioners. We
gave due course to the petition but did
not issue the writ of preliminary
injunction prayed for therein.
The pertinent facts of this case, as
gathered from record, are as
follows:chanrob1es virtual 1aw library
On February 24, 1970, respondent Misael
P. Vera, Commissioner of Internal
Revenue, wrote a letter addressed to
respondent Judge Vivencio M. Ruiz
requesting the issuance of a search
warrant against petitioners for violation of
Section 46(a) of the National Internal
Revenue Code, in relation to all other
pertinent provisions thereof, particularly
Sections 53, 72, 73, 208 and 209, and
authorizing Revenue Examiner Rodolfo de
Leon, one of herein respondents, to make
and file the application for search warrant
which was attached to the letter.
In the afternoon of the following day,
February 25, 1970, respondent De Leon
and his witness, respondent Arturo
Logronio, went to the Court of First
Instance of Rizal. They brought with them
the following papers: respondent Vera’s
aforesaid letter-request; an application
for search warrant already filled up but
still unsigned by respondent De Leon; an
affidavit of respondent Logronio
subscribed before respondent De Leon; a
deposition in printed form of respondent
Logronio already accomplished and signed
by him but not yet subscribed; and a
search warrant already accomplished but
still unsigned by respondent Judge.
At that time respondent Judge was
hearing a certain case; so, by means of a
note, he instructed his Deputy Clerk of
Court to take the depositions of
respondents De Leon and Logronio. After
the session had adjourned, respondent
Judge was informed that the depositions
had already been taken. The
stenographer, upon request of respondent
Judge, read to him her stenographic
notes; and thereafter, respondent Judge
asked respondent Logronio to take the
oath and warned him that if his deposition
was found to be false and without legal
basis, he could be charged for perjury.
Respondent Judge signed respondent de
Leon’s application for search warrant and
respondent Logronio’s deposition, Search
Warrant No. 2-M-70 was then sign by
respondent Judge and accordingly issued.
Three days later, or on February 28,
1970, which was a Saturday, the BIR
agents served the search warrant
petitioners at the offices of petitioner
corporation on Ayala Avenue, Makati,
Rizal. Petitioners’ lawyers protested the
search on the ground that no formal
complaint or transcript of testimony was
attached to the warrant. The agents
nevertheless proceeded with their search
which yielded six boxes of documents.
On March 3, 1970, petitioners filed a
petition with the Court of First Instance of
Rizal praying that the search warrant be
quashed, dissolved or recalled, that
preliminary prohibitory and mandatory
writs of injunction be issued, that the
search warrant be declared null and void,
and that the respondents be ordered to
pay petitioners, jointly and severally,
damages and attorney’s fees. On March
18, 1970, the respondents, thru the
Solicitor General, filed an answer to the
petition. After hearing, the court, presided
over by respondent Judge, issued on July
29, 1970, an order dismissing the petition
for dissolution of the search warrant. In
the meantime, or on April 16, 1970, the
Bureau of Internal Revenue made tax
assessments on petitioner corporation in
the total sum of P2,594,729.97, partly, if
not entirely, based on the documents
thus seized. Petitioners came to this
Court.
The petition should be granted for the
following reasons:chanrob1es virtual 1aw
library
1. Respondent Judge failed to personally
examine the complainant and his witness.
The pertinent provisions of the
Constitution of the Philippines and of the
Revised Rules of Court
are:jgc:chanrobles.com.ph
"(3) The right of the people to be secure
in their persons, houses, papers and
effects against unreasonable searches
and seizures shall not be violated, and no
warrants shall issue but upon probable
cause, to be determined by the judge
after examination under oath or
affirmation of the complainant and the
witnesses he may produce, and
particularly describing the place to be
searched, and the persons or things to be
seized." (Art. III, Sec. 1, Constitution.)
"SEC. 3. Requisites for issuing search
warrant. — A search warrant shall not
issue but upon probable cause in
connection with one specific offense to be
determined by the judge or justice of the
peace after examination under oath or
affirmation of the complainant and the
witnesses he may produce, and
particularly describing the place to be
searched and the persons or things to be
seized.
"No search warrant shall issue for more
than one specific offense.
"SEC. 4. Examination of the applicant. —
The judge or justice of the peace must,
before issuing the warrant, personally
examine on oath or affirmation the
complainant and any witnesses he may
produce and take their depositions in
writing, and attach them to the record, in
addition to any affidavits presented to
him." (Rule 126, Revised Rules of Court.)
The examination of the complainant and
the witnesses he may produce, required
by Art. III, Sec. 1, par. 3, of the
Constitution, and by Secs. 3 and 4, Rule
126 of the Revised Rules of Court, should
be conducted by the judge himself and
not by others. The phrase "which shall be
determined by the judge after
examination under oath or affirmation of
the complainant and the witnesses he
may produce," appearing in the said
constitutional provision, was introduced
by Delegate Francisco as an amendment
to the draft submitted by the Sub-
Committee of Seven. The following
discussion in the Constitutional
Convention (Laurel, Proceedings of the
Philippine Constitutional Convention, Vol.
III, pp. 755-757) is
enlightening:jgc:chanrobles.com.ph
"SR. ORENSE. Vamos a dejar compañero
los piropos y vamos al grano.
En los casos de una necesidad de actuar
inmediatamente para que no se frusten
los fines de la justicia mediante el registro
inmediato y la incautacion del cuerpo del
delito, no cree Su Señoria que causaria
cierta demora el procedimiento apuntado
en su enmienda en tal forma que podria
frustrar los fines de la justicia o si Su
Señoria encuentra un remedio para esto
casos con el fin de compaginar los fines
de la justicia con los derechos del
individuo en su persona, bienes etcetera,
etcetera.
"SR. FRANCISCO. No puedo ver en la
practica el caso hipottico que Su Señoria
pregunta por la siguiente razon: el que
solicita un mandamiento de registro tiene
que hacerlo por escrito y ese escrito no
aparecer en la Mesa del Juez sin que
alguien vaya el juez a presentar ese
escrito o peticion de sucuestro. Esa
persona que presenta el registro puede
ser el mismo denunciante o alguna
persona que solicita dicho mandamiento
de registro. Ahora toda la enmienda en
esos casos consiste en que haya peticion
de registro y el juez no se atendra
solamente a sea peticion sino que el juez
examiner a ese denunciante y si tiene
testigos tambin examiner a los testigos.
"SR. ORENSE. No cree Su Señoria que el
tomar le declaracion de ese denunciante
por escrito siempre requeriria algun
tiempo?.
"SR. FRANCISCO. Seria cuestio de un par
de horas, pero por otro lado minimizamos
en todo lo posible las vejaciones injustas
con la expedicion arbitraria de los
mandamientos de registro. Creo que
entre dos males debemos escoger. el
menor.
x x x (respondent De Leon) and his witness
"MR. LAUREL. . . . The reason why we are
in favor of this amendment is because we
are incorporating in our constitution
something of a fundamental character.
Now, before a judge could issue a search
warrant, he must be under the obligation
to examine personally under oath the
complainant and if he has any witness,
the witnesses that he may produce . .
."cralaw virtua1aw library
The implementing rule in the Revised
Rules of Court, Sec. 4, Rule 126, is more
emphatic and candid, for it requires the
judge, before issuing a search warrant, to
"personally examine on oath or
affirmation the complainant and any
witnesses he may produce . . ."cralaw
virtua1aw library
Personal examination by the judge of the
complainant and his witnesses is
necessary to enable him to determine the
existence or non-existence of a probable
cause, pursuant to Art. III, Sec. 1, par. 3,
of the Constitution, and Sec. 3, Rule 126
of the Revised Rules of Court, both of
which prohibit the issuance of warrants
except "upon probable cause." The
determination of whether or not a
probable cause exists calls for the
exercise of judgment after a judicial
appraisal of facts and should not be
allowed to be delegated in the absence of
any rule to the contrary.
In the case at bar, no personal
examination at all was conducted by
respondent Judge of the complainant
(respondent Logronio). While it is true
that the complainant’s application for
search warrant and the witness’ printed-
form deposition were subscribed and
sworn to before respondent Judge, the
latter did not ask either of the two any
question the answer to which could
possibly be the basis for determining
whether or not there was probable cause
against herein petitioners. Indeed, the
participants seem to have attached so
little significance to the matter that notes
of the proceedings before respondent
Judge were not even taken. At this
juncture it may be well to recall the
salient facts. The transcript of
stenographic notes (pp. 61-76, April 1,
1970, Annex J-2 of the Petition) taken at
the hearing of this case in the court below
shows that per instruction of respondent
Judge, Mr. Eleodoro V. Gonzales, Special
Deputy Clerk of Court, took the
depositions of the complainant and his
witness, and that stenographic notes
thereof were taken by Mrs. Gaspar. At
that time respondent Judge was at the
sala hearing a case. After respondent
Judge was through with the hearing,
Deputy Clerk Gonzales, stenographer
Gaspar, complainant De Leon and witness
Logronio went to respondent Judge’s
chamber and informed the Judge that
they had finished the depositions.
Respondent Judge then requested the
stenographer to read to him her
stenographic notes. Special Deputy Clerk
Gonzales testified as
follows:jgc:chanrobles.com.ph
"A And after finishing reading the
stenographic notes, the Honorable Judge
requested or instructed them, requested
Mr. Logronio to raise his hand and warned
him if his deposition will be found to be
false and without legal basis, he can be
charged criminally for perjury. The
Honorable Court told Mr. Logronio
whether he affirms the facts contained in
his deposition and the affidavit executed
before Mr. Rodolfo de Leon.
"Q And thereafter?
"A And thereafter, he signed the
deposition of Mr. Logronio.
"Q Who is this he?
"A The Honorable Judge.
"Q The deposition or the affidavit?
"A The affidavit, Your Honor."cralaw
virtua1aw library

Thereafter, respondent Judge signed the
search warrant.
The participation of respondent Judge in
the proceedings which led to the issuance
of Search Warrant No. 2-M-70 was thus
limited to listening to the stenographer’s
readings of her notes, to a few words of
warning against the commission of
perjury, and to administering the oath to
the complainant and his witness. This
cannot be consider a personal
examination. If there was an examination
at all of the complainant and his witness,
it was the one conducted by the Deputy
Clerk of Court. But, as stated, the
Constitution and the rules require a
personal examination by the judge. It was
precisely on account of the intention of
the delegates to the Constitutional
Convention to make it a duty of the
issuing judge to personally examine the
complainant and his witnesses that the
question of how much time would be
consumed by the judge in examining
them came up before the Convention, as
can be seen from the record of the
proceedings quoted above. The reading of
the stenographic notes to respondent
Judge did not constitute sufficient
compliance with the constitutional
mandate and the rule; for by that manner
respondent Judge did not have the
opportunity to observe the demeanor of
the complainant and his witness, and to
propound initial and follow-up questions
which the judicial mind, on account of its
training, was in the best position to
conceive. These were important in
arriving at a sound inference on the all-
important question of whether or not
there was probable cause.
2. The search warrant was issued for
more than one specific offense.
Search Warrant No. 2-M-70 was issued
for" [v]iolation of Sec. 46(a) of the
National Internal Revenue Code in
relation to all other pertinent provisions
thereof particularly Secs. 53, 72, 73, 208
and 209." The question is: Was the said
search warrant issued "in connection with
one specific offense," as required by Sec.
3, Rule 126?
To arrive at the correct answer it is
essential to examine closely the
provisions of the Tax Code referred to
above. Thus we find the
following:chanrob1es virtual 1aw library
Sec. 46(a) requires the filing of income
tax returns by corporations.
Sec. 53 requires the withholding of
income taxes at source.
Sec. 72 imposes surcharges for failure to
render income tax returns and for
rendering false and fraudulent returns.
Sec. 73 provides the penalty for failure to
pay the income tax, to make a return or
to supply the information required under
the Tax Code.
Sec. 208 penalizes" [a]ny person who
distills, rectifies, repacks, compounds, or
manufactures any article subject to a
specific tax, without having paid the
privilege tax therefore, or who aids or
abets in the conduct of illicit distilling,
rectifying, compounding, or illicit
manufacture of any article subject to
specific tax . . .," and provides that in the
case of a corporation, partnership, or
association, the official and/or employee
who caused the violation shall be
responsible.
Sec. 209 penalizes the failure to make a
return of receipts, sales, business, or
gross value of output removed, or to pay
the tax due thereon.
The search warrant in question was
issued for at least four distinct offenses
under the Tax Code. The first is the
violation of Sec. 46(a), Sec. 72 and Sec.
73 (the filing of income tax returns),
which are interrelated. The second is the
violation of Sec. 53 (withholding of
income taxes at source). The third is the
violation of Sec. 208 (unlawful pursuit of
business or occupation); and the fourth is
the violation of Sec. 209 (failure to make
a return of receipts, sales, business or
gross value of output actually removed or
to pay the tax due thereon). Even in their
classification the six above-mentioned
provisions are embraced in two different
titles: Secs. 46(a), 53, 72 and 73 are
under Title II (Income Tax); while Secs.
208 and 209 are under Title V (Privilege
Tax on Business and Occupation).
Respondents argue that Stonehill, Et. Al.
v. Diokno, Et Al., L-19550, June 19, 1967
(20 SCRA 383), is not applicable, because
there the search warrants were issued for
"violation of Central Bank Laws, Internal
Revenue (Code) and Revised Penal
Code;" whereas, here Search Warrant No
2-M-70 was issued for violation of only
one code, i.e., the National Internal
Revenue Code. The distinction more
apparent than real, because it was
precisely on account of the Stonehill
incident, which occurred sometime before
the present Rules of Court took effect on
January 1, 1964, that this Court amended
the former rule by inserting therein the
phrase "in connection with one specific
offense," and adding the sentence "No
search warrant shall issue for more than
one specific offense," in what is now Sec.
3, Rule 126. Thus we said in
Stonehill:jgc:chanrobles.com.ph
"Such is the seriousness of the
irregularities committed in connection
with the disputed search warrants, that
this Court deemed it fit to amend Section
3 of Rule 122 of the former Rules of Court
that ‘a search warrant shall not issue but
upon probable cause in connection with
one specific offense.’ Not satisfied with
this qualification, the Court added thereto
a paragraph, directing that ‘no search
warrant shall issue for more than one
specific offense.’"
3. The search warrant does not
particularly describe the things to be
seized.
The documents, papers and effects
sought to be seized are described in
Search Warrant No. 2-M-70 in this
manner:jgc:chanrobles.com.ph
"Unregistered and private books of
accounts (ledgers, journals, columnars,
receipts and disbursements books,
customers ledgers); receipts for
payments received; certificates of stocks
and securities; contracts, promissory
notes and deeds of sale; telex and coded
messages; business communications,
accounting and business records; checks
and check stubs; records of bank deposits
and withdrawals; and records of foreign
remittances, covering the years 1966 to
1970."cralaw virtua1aw library
The description does not meet the
requirement in Art III, Sec. 1, of the
Constitution, and of Sec. 3, Rule 126 of
the Revised Rules of Court, that the
warrant should particularly describe the
things to be seized.
In Stonehill, this Court, speaking thru Mr.
Chief Justice Roberto Concepcion,
said:jgc:chanrobles.com.ph
"The grave violation of the Constitution
made in the application for the contested
search warrants was compounded by the
description therein made of the effects to
be searched for and seized, to
wit:chanrob1es virtual 1aw library
‘Books of accounts, financial records,
vouchers, journals, correspondence,
receipts, ledgers, portfolios, credit
journals, typewriters, and other
documents and/or paper showing all
business transactions including
disbursement receipts, balance sheets
and related profit and loss statements.’
"Thus, the warrants authorized the search
for and seizure of records pertaining to all
business transactions of petitioners
herein, regardless of whether the
transactions were legal or illegal. The
warrants sanctioned the seizure of all
records of the petitioners and the
aforementioned corporations, whatever
their nature, thus openly contravening
the explicit command of our Bill of Rights
— that the things to be seized be
particularly described — as well as
tending to defeat its major objective: the
elimination of general warrants."cralaw
virtua1aw library
While the term "all business transactions"
does not appear in Search Warrant No. 2-
M-70, the said warrant nevertheless tends
to defeat the major objective of the Bill of
Rights, i.e., the elimination of general
warrants, for the language used therein is
so all-embracing as to include all
conceivable records of petitioner
corporation, which, if seized, could
possibly render its business inoperative.
In Uy Kheytin, Et. Al. v. Villareal, etc., Et
Al., 42 Phil. 886, 896, this Court had
occasion to explain the purpose of the
requirement that the warrant should
particularly describe the place to be
searched and the things to be seized, to
wit:jgc:chanrobles.com.ph
". . . Both the Jones Law (sec. 3) and
General Orders No. 58 (sec. 97)
specifically require that a search warrant
should particularly describe the place to
be searched and the things to be seized.
The evident purpose and intent of this
requirement is to limit the things to be
seized to those, and only those,
particularly described in the search
warrant — to leave the officers of the law
with no discretion regarding what articles
they shall seize, to the end that
‘unreasonable searches and seizures’ may
not be made, — that abuses may not be
committed. That this is the correct
interpretation of this constitutional
provision is borne out by American
authorities."cralaw virtua1aw library
The purpose as thus explained could,
surely and effectively, be defeated under
the search warrant issued in this case.
A search warrant may be said to
particularly describe the things to be
seized when the description therein is as
specific as the circumstances will
ordinarily allow (People v. Rubio; 57 Phil.
384); or when the description expresses a
conclusion of fact — not of law — by
which the warrant officer may be guided
in making the search and seizure (idem.,
dissent of Abad Santos, J.,); or when the
things described are limited to those
which bear direct relation to the offense
for which the warrant is being issued
(Sec. 2, Rule 126, Revised Rules of
Court). The herein search warrant does
not conform to any of the foregoing tests.
If the articles desired to be seized have
any direct relation to an offense
committed, the applicant must necessarily
have some evidence, other than those
articles, to prove the said offense; and
the articles subject of search and seizure
should come in handy merely to
strengthen such evidence. In this event,
the description contained in the herein
disputed warrant should have mentioned,
at least, the dates, amounts, persons,
and other pertinent data regarding the
receipts of payments, certificates of
stocks and securities, contracts,
promissory notes, deeds of sale,
messages and communications, checks,
bank deposits and withdrawals, records of
foreign remittances, among others,
enumerated in the warrant.
Respondents contend that certiorari does
not lie because petitioners failed to file a
motion for reconsideration of respondent
Judge’s order of July 29, 1970. The
contention is without merit. In the first
place, when the questions raised before
this Court are the same as those which
were squarely raised in and passed upon
by the court below, the filing of a motion
for reconsideration in said court
before certiorari can be instituted in this
Court is no longer a prerequisite. (Pajo,
etc., Et. Al. v. Ago, Et Al., 108 Phil., 905).
In the second place, the rule requiring the
filing of a motion for reconsideration
before an application for a writ
of certiorari can be entertained was never
intended to be applied without
considering the circumstances. (Matutina
v. Buslon, Et Al., 109 Phil., 140.) In the
case at bar time is of the essence in view
of the tax assessments sought to be
enforced by respondent officers of the
Bureau of Internal Revenue against
petitioner corporation, On account of
which immediate and more direct action
becomes necessary. (Matute v. Court of
Appeals, Et Al., 26 SCRA 768.) Lastly, the
rule does not apply where, as in this case,
the deprivation of petitioners’
fundamental right to due process taints
the proceeding against them in the court
below not only with irregularity but also
with nullity. (Matute v. Court of Appeals,
Et Al., supra.)
It is next contended by respondents that
a corporation is not entitled to protection
against unreasonable search and
seizures. Again, we find no merit in the
contention.
"Although, for the reasons above stated,
we are of the opinion that an officer of a
corporation which is charged with a
violation of a statute of the state of its
creation, or of an act of Congress passed
in the exercise of its constitutional
powers, cannot refuse to produce the
books and papers of such corporation, we
do not wish to be understood as holding
that a corporation is not entitled to
immunity, under the 4th Amendment,
against unreasonable searches and
seizures. A corporation is, after all, but an
association of individuals under an
assumed name and with a distinct legal
entity. In organizing itself as a collective
body it waives no constitutional
immunities appropriate to such body. Its
property cannot be taken without
compensation. It can only be proceeded
against by due process of law, and is
protected, under the 14th Amendment,
against unlawful discrimination . . ." (Hale
v. Henkel, 201 U.S. 43, 50 L. ed. 652.)
"In Linn v. United States, 163 C.C.A. 470,
251 Fed. 476, 480, it was thought that a
different rule applied to a corporation, the
ground that it was not privileged from
producing its books and papers. But the
rights of a corporation against unlawful
search and seizure are to be protected
even if the same result might have been
achieved in a lawful way." (Silverthorne
Lumber Company, Et. Al. v. United States
of America, 251 U.S. 385, 64 L. ed. 319.)
In Stonehill, Et. Al. v. Diokno, Et Al.,
supra, this Court impliedly recognized the
right of a corporation to object against
unreasonable searches and seizures,
thus:jgc:chanrobles.com.ph
"As regards the first group, we hold that
petitioners herein have no cause of action
to assail the legality of the contested
warrants and of the seizures made in
pursuance thereof, for the simple reason
that said corporations have their
respective personalities, separate and
distinct from the personality of herein
petitioners, regardless of the amount of
shares of stock or the interest of each of
them in said corporations, whatever, the
offices they hold therein may be. Indeed,
it is well settled that the legality of a
seizure can be contested only by the
party whose rights have been impaired
thereby, and that the objection to an
unlawful search and seizure is purely
personal and cannot be availed of by third
parties. Consequently, petitioners herein
may not validly object to the use in
evidence against them of the documents,
papers and things seized from the offices
and premises of the corporations
adverted to above, since the right to
object to the admission of said papers in
evidence belongs exclusively to the
corporations, to whom the seized effects
belong, and may not be invoked by the
corporate officers in proceedings against
them in their individual capacity . .
."cralaw virtua1aw library
In the Stonehill case only the officers of
the various corporations in whose offices
documents, papers and effects were
searched and seized were the petitioners.
In the case at bar, the corporation to
whom the seized documents belong, and
whose rights have thereby been impaired,
is itself a petitioner. On that score,
petitioner corporation here stands on a
different footing from the corporations in
Stonehill.
The tax assessments referred to earlier in
this opinion were, if not entirely — as
claimed by petitioners — at least partly —
as in effect admitted by respondents —
based on the documents seized by virtue
of Search Warrant No. 2-M-70.
Furthermore, the fact that the
assessments were made some one and
one-half months after the search and
seizure on February 25, 1970, is a strong
indication that the documents thus seized
served as basis for the assessments.
Those assessments should therefore not
be enforced.
PREMISES CONSIDERED, the petition is
granted. Accordingly, Search Warrant No.
2-M-70 issued by respondent Judge is
declared null and void; respondents are
permanently enjoined from enforcing the
said search warrant; the documents,
papers and effects seized thereunder are
ordered to be returned to petitioners; and
respondent officials the Bureau of Internal
Revenue and their representatives are
permanently enjoined from enforcing the
assessments mentioned in Annex "G" of
the present petition, as well as other
assessments based on the documents,
papers and effects seized under the
search warrant herein nullified, and from
using the same against petitioners in any
criminal or other proceeding. No
pronouncement as to costs.
Concepcion, C.J., Dizon, Makalintal,
Zaldivar, Fernando, Teehankee and
Makasiar, JJ., concur.
Reyes, J.B.L., J., concurs with Mr. Justice
Barredo.
Castro, J., concurs in the result.
Separate Opinions
BARREDO, J., concurring:chanrob1es
virtual 1aw library
I concur.
I agree with the ruling that the search
warrants in question violates the specific
injunction of Section 3, Rule 126 that "No
search warrant shall issue for more than
one specific offense." There is no question
in my mind that, as very clearly pointed
out by Mr. Justice Villamor, the phrase
"for violation of Section 46 (a) of the
National Internal Revenue Code in
relation to all other pertinent provisions
thereof, particularly Sections 53, 72, 73,
208 and 209" refers to more than one
specific offense, considering that the
violation of Section 53 which refers to
withholding of income taxes at the
sources, Section 208 which punishes
pursuit of business or occupation without
payment of the corresponding specific or
privilege taxes, and Section 209 which
penalizes failure to make a return of
receipts sales, business or gross value
output actually removed or to pay the
taxes thereon in connection with Title V
on Privilege Taxes on Business and
Occupation can hardly be absorbed in a
charge of alleged violation of Section
46(a), which merely requires the filing of
income tax returns by corporations, so as
to constitute with it a single offense. I
perceive here the danger that the result
of the search applied for may be used as
basis not only for a charge of violating
Section 46(a) but also and separately of
Section 53, 208 and 209. Of course, it is
to be admitted that Sections 72 and 73,
also mentioned in the application, are
really directly related to Section 46(a)
because Section 72 provides for
surcharges for failure to render, returns
and for rendering false and fraudulent
returns and Section 73 refers to the
penalty for failure to file returns or to pay
the corresponding tax. Taken together,
they constitute one single offense
penalized under Section 73. I am not and
cannot be in favor of any scheme which
amounts to an indirect means of
achieving that which not allowed to be
done directly. By merely saying that a
party is being charged with violation of
one section of the code in relation to a
number of other sections thereof which in
truth have no clear or direct bearing with
the first is to me condemnable because it
is no less than a shotgun device which
trenches on the basic liberties intended to
be protected by the unequivocal
limitations imposed by the Constitution
and the Rules of Court on the privilege to
secure a search warrant with the
aggravating circumstance of being
coupled with an attempt to mislead the
judge before whom the application for its
issuance is presented.
I cannot close this brief concurrence
without expressing my vehement
disapproval of the action taken by
respondent internal revenue authorities in
using the documents and papers secured
during the search, the legality of which
was pending resolution by the court, as
basis of an assessment, no matter how
highly motivated such action might have
been. This smacks of lack of respect, if
not contempt for the court and is
certainly intolerable. At the very least, it
appears as an attempt to render the court
proceedings moot and academic, and
dealing as this case does with
constitutionally protected rights which are
part and parcel of the basic concepts of
individual liberty and democracy, the
government agents should have been the
first ones to refrain from trying to make a
farce of these court proceedings. Indeed,
it is to be regretted that the government
agents and the court have acted
irregularly, for it is highly doubtful if it
would be consistent with the sacredness
of the rights herein found to have been
violated to permit the filing of another
application which complies with the
constitutional requirements above
discussed and the making of another
search upon the return of the papers and
documents now in their illegal possession.
This could be an instance wherein taxes
properly due the State will probably
remain unassessed and unpaid only
because the ones in charge of the
execution of the laws did not know how to
respect basic constitutional rights and
liberties.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 15574 September 17, 1919
SMITH, BELL & COMPANY (LTD.), petitioner,
vs.
JOAQUIN NATIVIDAD, Collector of Customs
of the port of Cebu, respondent.
Ross and Lawrence for petitioner.
Attorney-General Paredes for respondent.
MALCOLM, J.:
A writ of mandamus is prayed for by Smith, Bell
& Co. (Ltd.), against Joaquin Natividad,
Collector of Customs of the port of Cebu,
Philippine Islands, to compel him to issue a
certificate of Philippine registry to the petitioner
for its motor vessel Bato. The Attorney-General,
acting as counsel for respondent, demurs to the
petition on the general ground that it does not
state facts sufficient to constitute a cause of
action. While the facts are thus admitted, and
while, moreover, the pertinent provisions of law
are clear and understandable, and interpretative
American jurisprudence is found in abundance,
yet the issue submitted is not lightly to be
resolved. The question, flatly presented, is,
whether Act. No. 2761 of the Philippine
Legislature is valid — or, more directly stated,
whether the Government of the Philippine
Islands, through its Legislature, can deny the
registry of vessels in its coastwise trade to
corporations having alien stockholders.
FACTS.
Smith, Bell & Co., (Ltd.), is a corporation
organized and existing under the laws of the
Philippine Islands. A majority of its stockholders
are British subjects. It is the owner of a motor
vessel known as the Bato built for it in the
Philippine Islands in 1916, of more than fifteen
tons gross The Bato was brought to Cebu in the
present year for the purpose of transporting
plaintiff's merchandise between ports in the
Islands. Application was made at Cebu, the
home port of the vessel, to the Collector of
Customs for a certificate of Philippine registry.
The Collector refused to issue the certificate,
giving as his reason that all the stockholders of
Smith, Bell & Co., Ltd., were not citizens either
of the United States or of the Philippine Islands.
The instant action is the result.
LAW.
The Act of Congress of April 29, 1908, repealing
the Shipping Act of April 30, 1906 but
reenacting a portion of section 3 of this Law,
and still in force, provides in its section 1:
That until Congress shall have
authorized the registry as vessels of
the United States of vessels owned in
the Philippine Islands, the Government
of the Philippine Islands is hereby
authorized to adopt, from time to time,
and enforce regulations governing the
transportation of merchandise and
passengers between ports or places in
the Philippine Archipelago. (35 Stat. at
L., 70; Section 3912, U. S. Comp Stat.
[1916]; 7 Pub. Laws, 364.)
The Act of Congress of August 29, 1916,
commonly known as the Jones Law, still in
force, provides in section 3, (first paragraph,
first sentence), 6, 7, 8, 10, and 31, as follows.
SEC. 3. That no law shall be enacted
in said Islands which shall deprive any
person of life, liberty, or property
without due process of law, or deny to
any person therein the equal protection
of the laws. . . .
SEC. 6. That the laws now in force in
the Philippines shall continue in force
and effect, except as altered,
amended, or modified herein, until
altered, amended, or repealed by the
legislative authority herein provided or
by Act of Congress of the United
States.
SEC. 7. That the legislative authority
herein provided shall have power,
when not inconsistent with this Act, by
due enactment to amend, alter modify,
or repeal any law, civil or criminal,
continued in force by this Act as it may
from time to time see fit
This power shall specifically extend
with the limitation herein provided as to
the tariff to all laws relating to revenue
provided as to the tariff to all laws
relating to revenue and taxation in
effect in the Philippines.
SEC. 8. That general legislative power,
except as otherwise herein provided, is
hereby granted to the Philippine
Legislature, authorized by this Act.
SEC. 10. That while this Act provides
that the Philippine government shall
have the authority to enact a tariff law
the trade relations between the islands
and the United States shall continue to
be governed exclusively by laws of the
Congress of the United
 States: Provided, That tariff acts or
acts amendatory to the tariff of the
Philippine Islands shall not become
law until they shall receive the
approval of the President of the United
States, nor shall any act of the
Philippine Legislature affecting
immigration or the currency or coinage
laws of the Philippines become a law
until it has been approved by the
President of the United
States: Provided further, That the
President shall approve or disapprove
any act mentioned in the foregoing
proviso within six months from and
after its enactment and submission for
his approval, and if not disapproved
within such time it shall become a law
the same as if it had been specifically
approved.
SEC. 31. That all laws or parts of laws
applicable to the Philippines not in
conflict with any of the provisions of
this Act are hereby continued in force
and effect." (39 Stat at L., 546.)
On February 23, 1918, the Philippine
Legislature enacted Act No. 2761. The first
section of this law amended section 1172 of the
Administrative Code to read as follows:
SEC. 1172. Certificate of Philippine
register. — Upon registration of a
vessel of domestic ownership, and of
more than fifteen tons gross, a
certificate of Philippine register shall be
issued for it. If the vessel is of
domestic ownership and of fifteen tons
gross or less, the taking of the
certificate of Philippine register shall be
optional with the owner.
"Domestic ownership," as used in this
section, means ownership vested in
some one or more of the following
classes of persons: (a) Citizens or
native inhabitants of the Philippine
Islands; (b) citizens of the United
States residing in the Philippine
Islands; (c) any corporation or
company composed wholly of citizens
of the Philippine Islands or of the
United States or of both, created under
the laws of the United States, or of any
State thereof, or of thereof, or the
managing agent or master of the
vessel resides in the Philippine Islands
Any vessel of more than fifteen gross
tons which on February eighth,
nineteen hundred and eighteen, had a
certificate of Philippine register under
existing law, shall likewise be deemed
a vessel of domestic ownership so
long as there shall not be any change
in the ownership thereof nor any
transfer of stock of the companies or
corporations owning such vessel to
person not included under the last
preceding paragraph.
Sections 2 and 3 of Act No. 2761 amended
sections 1176 and 1202 of the Administrative
Code to read as follows:
SEC. 1176. Investigation into character
of vessel. — No application for a
certificate of Philippine register shall be
approved until the collector of customs
is satisfied from an inspection of the
vessel that it is engaged or destined to
be engaged in legitimate trade and that
it is of domestic ownership as such
ownership is defined in section eleven
hundred and seventy-two of this Code.
The collector of customs may at any
time inspect a vessel or examine its
owner, master, crew, or passengers in
order to ascertain whether the vessel
is engaged in legitimate trade and is
entitled to have or retain the certificate
of Philippine register.
SEC. 1202. Limiting number of foreign
officers and engineers on board
vessels. — No Philippine vessel
operating in the coastwise trade or on
the high seas shall be permitted to
have on board more than one master
or one mate and one engineer who are
not citizens of the United States or of
the Philippine Islands, even if they hold
licenses under section one thousand
one hundred and ninety-nine hereof.
No other person who is not a citizen of
the United States or of the Philippine
Islands shall be an officer or a member
of the crew of such vessel. Any such
vessel which fails to comply with the
terms of this section shall be required
to pay an additional tonnage tax of fifty
centavos per net ton per month during
the continuance of said failure.
ISSUES.
Predicated on these facts and provisions of law,
the issues as above stated recur, namely,
whether Act No 2761 of the Philippine
Legislature is valid in whole or in part —
whether the Government of the Philippine
Islands, through its Legislature, can deny the
registry of vessel in its coastwise trade to
corporations having alien stockholders .
OPINION.
1. Considered from a positive standpoint, there
can exist no measure of doubt as to the power
of the Philippine Legislature to enact Act No.
2761. The Act of Congress of April 29, 1908,
with its specific delegation of authority to the
Government of the Philippine Islands to regulate
the transportation of merchandise and
passengers between ports or places therein, the
liberal construction given to the provisions of the
Philippine Bill, the Act of Congress of July 1,
1902, by the courts, and the grant by the Act of
Congress of August 29, 1916, of general
legislative power to the Philippine Legislature,
are certainly superabundant authority for such a
law. While the Act of the local legislature may in
a way be inconsistent with the Act of Congress
regulating the coasting trade of the Continental
United States, yet the general rule that only
such laws of the United States have force in the
Philippines as are expressly extended thereto,
and the abnegation of power by Congress in
favor of the Philippine Islands would leave no
starting point for convincing argument. As a
matter of fact, counsel for petitioner does not
assail legislative action from this direction
(See U. S. vs. Bull [1910], 15 Phil., 7;
Sinnot vs. Davenport [1859] 22 How., 227.)
2. It is from the negative, prohibitory standpoint
that counsel argues against the constitutionality
of Act No. 2761. The first paragraph of the
Philippine Bill of Rights of the Philippine Bill,
repeated again in the first paragraph of the
Philippine Bill of Rights as set forth in the Jones
Law, provides "That no law shall be enacted in
said Islands which shall deprive any person of
life, liberty, or property without due process of
law, or deny to any person therein the equal
protection of the laws." Counsel says that Act
No. 2761 denies to Smith, Bell & Co., Ltd., the
equal protection of the laws because it, in effect,
prohibits the corporation from owning vessels,
and because classification of corporations
based on the citizenship of one or more of their
stockholders is capricious, and that Act No.
2761 deprives the corporation of its properly
without due process of law because by the
passage of the law company was automatically
deprived of every beneficial attribute of
ownership in the Bato and left with the naked
title to a boat it could not use .
The guaranties extended by the Congress of
the United States to the Philippine Islands have
been used in the same sense as like provisions
found in the United States Constitution. While
the "due process of law and equal protection of
the laws" clause of the Philippine Bill of Rights
is couched in slightly different words than the
corresponding clause of the Fourteenth
Amendment to the United States Constitution,
the first should be interpreted and given the
same force and effect as the latter. (Kepner vs.
U.S. [1904], 195 U. S., 100; Sierra vs. Mortiga
[1907], 204 U. S.,.470; U. S. vs. Bull [1910], 15
Phil., 7.) The meaning of the Fourteenth
Amendment has been announced in classic
decisions of the United States Supreme Court.
Even at the expense of restating what is so well
known, these basic principles must again be set
down in order to serve as the basis of this
decision.
The guaranties of the Fourteenth Amendment
and so of the first paragraph of the Philippine
Bill of Rights, are universal in their application to
all person within the territorial jurisdiction,
without regard to any differences of race, color,
or nationality. The word "person" includes
aliens. (Yick Wo vs. Hopkins [1886], 118 U. S.,
356; Truax vs. Raich [1915], 239 U. S., 33.)
Private corporations, likewise, are "persons"
within the scope of the guaranties in so far as
their property is concerned. (Santa Clara
County vs. Southern Pac. R. R. Co. [1886],
118.U. S., 394; Pembina Mining
Co. vs. Pennsylvania [1888],.125 U. S., 181
Covington & L. Turnpike Road Co. vs. Sandford
[1896], 164 U. S., 578.) Classification with the
end in view of providing diversity of treatment
may be made among corporations, but must be
based upon some reasonable ground and not
be a mere arbitrary selection (Gulf, Colorado &
Santa Fe Railway Co. vs. Ellis [1897],.165 U.
S., 150.) Examples of laws held unconstitutional
because of unlawful discrimination against
aliens could be cited. Generally, these decisions
relate to statutes which had attempted arbitrarily
to forbid aliens to engage in ordinary kinds of
business to earn their living.
(State vs. Montgomery [1900], 94 Maine, 192,
peddling — but see. Commonwealth vs. Hana
[1907], 195 Mass., 262; Templar vs. Board of
Examiners of Barbers [1902], 131 Mich., 254,
barbers; Yick Wo vs. Hopkins [1886], 118 U.
S.,.356, discrimination against Chinese;
Truax vs. Raich [1915], 239 U. S., 33; In
re Parrott [1880], 1 Fed , 481;
Fraser vs. McConway & Torley Co. [1897], 82
Fed , 257; Juniata Limestone Co. vs. Fagley
[1898], 187 Penn., 193, all relating to the
employment of aliens by private corporations.)
A literal application of general principles to the
facts before us would, of course, cause the
inevitable deduction that Act No. 2761 is
unconstitutional by reason of its denial to a
corporation, some of whole members are
foreigners, of the equal protection of the laws.
Like all beneficient propositions, deeper
research discloses provisos. Examples of a
denial of rights to aliens notwithstanding the
provisions of the Fourteenth Amendment could
be cited. (Tragesser vs.Gray [1890], 73 Md.,
250, licenses to sell spirituous liquors denied to
persons not citizens of the United States;
Commonwealth vs. Hana [1907], 195 Mass ,
262, excluding aliens from the right to peddle;
Patsone vs.Commonwealth of Pennsylvania
[1914], 232 U. S. , 138, prohibiting the killing of
any wild bird or animal by any unnaturalized
foreign-born resident; Ex parte Gilleti [1915], 70
Fla., 442, discriminating in favor of citizens with
reference to the taking for private use of the
common property in fish and oysters found in
the public waters of the State; Heim vs. McCall
[1915], 239 U. S.,.175, and Crane vs. New York
[1915], 239 U. S., 195, limiting employment on
public works by, or for, the State or a
municipality to citizens of the United States.)
One of the exceptions to the general rule, most
persistent and far reaching in influence is, that
neither the Fourteenth Amendment to the
United States Constitution, broad and
comprehensive as it is, nor any other
amendment, "was designed to interfere with the
power of the State, sometimes termed its
`police power,' to prescribe regulations to
promote the health, peace, morals, education,
and good order of the people, and legislate so
as to increase the industries of the State,
develop its resources and add to its wealth and
prosperity. From the very necessities of society,
legislation of a special character, having these
objects in view, must often be had in certain
districts." (Barbier vs. Connolly [1884], 113 U.S.,
27; New Orleans Gas Co. vs. Lousiana Light
Co. [1885], 115 U.S., 650.) This is the same
police power which the United States Supreme
Court say "extends to so dealing with the
conditions which exist in the state as to bring
out of them the greatest welfare in of its
people." (Bacon vs.Walker [1907], 204 U.S.,
311.) For quite similar reasons, none of the
provision of the Philippine Organic Law could
could have had the effect of denying to the
Government of the Philippine Islands, acting
through its Legislature, the right to exercise that
most essential, insistent, and illimitable of
powers, the sovereign police power, in the
promotion of the general welfare and the public
interest. (U. S. vs. Toribio [1910], 15 Phil., 85;
Churchill and Tait vs. Rafferty [1915], 32 Phil.,
580; Rubi vs. Provincial Board of Mindoro
[1919], 39 Phil., 660.) Another notable
exception permits of the regulation or
distribution of the public domain or the common
property or resources of the people of the State,
so that use may be limited to its citizens. (Ex
parte Gilleti [1915], 70 Fla., 442;
McCready vs. Virginia [1876], 94 U. S., 391;
Patsone vs. Commonwealth of Pennsylvania
[1914], 232U. S., 138.) Still another exception
permits of the limitation of employment in the
construction of public works by, or for, the State
or a municipality to citizens of the United States
or of the State. (Atkin vs. Kansas [1903],191 U.
S., 207; Heim vs. McCall [1915], 239 U.S., 175;
Crane vs. New York [1915], 239 U. S., 195.)
Even as to classification, it is admitted that a
State may classify with reference to the evil to
be prevented; the question is a practical one,
dependent upon experience.
(Patsone vs.Commonwealth of Pennsylvania
[1914], 232 U. S., 138.)
To justify that portion of Act no. 2761 which
permits corporations or companies to obtain a
certificate of Philippine registry only on condition
that they be composed wholly of citizens of the
Philippine Islands or of the United States or
both, as not infringing Philippine Organic Law, it
must be done under some one of the
exceptions here mentioned This must be done,
moreover, having particularly in mind what is so
often of controlling effect in this jurisdiction —
our local experience and our peculiar local
conditions.
To recall a few facts in geography, within the
confines of Philippine jurisdictional limits are
found more than three thousand islands.
Literally, and absolutely, steamship lines are, for
an Insular territory thus situated, the arteries of
commerce. If one be severed, the life-blood of
the nation is lost. If on the other hand these
arteries are protected, then the security of the
country and the promotion of the general
welfare is sustained. Time and again, with such
conditions confronting it, has the executive
branch of the Government of the Philippine
Islands, always later with the sanction of the
judicial branch, taken a firm stand with
reference to the presence of undesirable
foreigners. The Government has thus assumed
to act for the all-sufficient and primitive reason
of the benefit and protection of its own citizens
and of the self-preservation and integrity of its
dominion. (In re Patterson [1902], 1 Phil., 93;
Forbes vs.Chuoco, Tiaco and Crossfield [1910],
16 Phil., 534;.228 U.S., 549; In re McCulloch
Dick [1918], 38 Phil., 41.) Boats owned by
foreigners, particularly by such solid and
reputable firms as the instant claimant, might
indeed traverse the waters of the Philippines for
ages without doing any particular harm. Again,
some evilminded foreigner might very easily
take advantage of such lavish hospitality to
chart Philippine waters, to obtain valuable
information for unfriendly foreign powers, to stir
up insurrection, or to prejudice Filipino or
American commerce. Moreover, under the
Spanish portion of Philippine law, the waters
within the domestic jurisdiction are deemed part
of the national domain, open to public use.
(Book II, Tit. IV, Ch. I, Civil Code; Spanish Law
of Waters of August 3, 1866, arts 1, 2, 3.)
Common carriers which in the Philippines as in
the United States and other countries are, as
Lord Hale said, "affected with a public interest,"
can only be permitted to use these public
waters as a privilege and under such conditions
as to the representatives of the people may
seem wise. (See De Villata vs. Stanley [1915],
32 Phil., 541.)
In Patsone vs. Commonwealth of Pennsylvania
([1913], 232 U.S., 138), a case herein before
mentioned, Justice Holmes delivering the
opinion of the United States Supreme Court
said:
This statute makes it unlawful for any
unnaturalized foreign-born resident to
kill any wild bird or animal except in
defense of person or property, and `to
that end' makes it unlawful for such
foreign-born person to own or be
possessed of a shotgun or rifle; with a
penalty of $25 and a forfeiture of the
gun or guns. The plaintiff in error was
found guilty and was sentenced to pay
the abovementioned fine. The
judgment was affirmed on successive
appeals. (231 Pa., 46; 79 Atl., 928.) He
brings the case to this court on the
ground that the statute is contrary to
the 14th Amendment and also is in
contravention of the treaty between the
United States and Italy, to which latter
country the plaintiff in error belongs .
Under the 14th Amendment the
objection is twofold; unjustifiably
depriving the alien of property, and
discrimination against such aliens as a
class. But the former really depends
upon the latter, since it hardly can be
disputed that if the lawful object, the
protection of wild life
(Geer vs. Connecticut, 161 U.S., 519;
40 L. ed., 793; 16 Sup. Ct. Rep., 600),
warrants the discrimination, the,
means adopted for making it effective
also might be adopted. . . .
The discrimination undoubtedly
presents a more difficult question. But
we start with reference to the evil to be
prevented, and that if the class
discriminated against is or reasonably
might be considered to define those
from whom the evil mainly is to be
feared, it properly may be picked out.
A lack of abstract symmetry does not
matter. The question is a practical one,
dependent upon experience. . . .
The question therefore narrows itself to
whether this court can say that the
legislature of Pennsylvania was not
warranted in assuming as its premise
for the law that resident unnaturalized
aliens were the peculiar source of the
evil that it desired to prevent.
(Barrett vs. Indiana,. 229 U.S., 26, 29;
57 L. ed., 1050, 1052; 33 Sup. Ct.
Rep., 692.)
Obviously the question, so stated, is
one of local experience, on which this
court ought to be very slow to declare
that the state legislature was wrong in
its facts (Adams vs. Milwaukee, 228
U.S., 572, 583; 57 L. ed., 971,.977; 33
Sup. Ct. Rep., 610.) If we might trust
popular speech in some states it was
right; but it is enough that this court
has no such knowledge of local
conditions as to be able to say that it
was manifestly wrong. . . .
Judgment affirmed.
We are inclined to the view that while Smith,
Bell & Co. Ltd., a corporation having alien
stockholders, is entitled to the protection
afforded by the due-process of law and equal
protection of the laws clause of the Philippine
Bill of Rights, nevertheless, Act No. 2761 of the
Philippine Legislature, in denying to
corporations such as Smith, Bell &. Co. Ltd., the
right to register vessels in the Philippines
coastwise trade, does not belong to that vicious
species of class legislation which must always
be condemned, but does fall within authorized
exceptions, notably, within the purview of the
police power, and so does not offend against
the constitutional provision.
This opinion might well be brought to a close at
this point. It occurs to us, however, that the
legislative history of the United States and the
Philippine Islands, and, probably, the legislative
history of other countries, if we were to take the
time to search it out, might disclose similar
attempts at restriction on the right to enter the
coastwise trade, and might thus furnish valuable
aid by which to ascertain and, if possible,
effectuate legislative intention.
3. The power to regulate commerce,
expressly delegated to the Congress
by the Constitution, includes the power
to nationalize ships built and owned in
the United States by registries and
enrollments, and the recording of the
muniments of title of American vessels.
The Congress "may encourage or it
may entirely prohibit such commerce,
and it may regulate in any way it may
see fit between these two extremes."
(U.S. vs.Craig [1886], 28 Fed., 795;
Gibbons vs. Ogden [1824], 9 Wheat.,
1; The Passenger Cases [1849], 7
How., 283.)
Acting within the purview of such power, the first
Congress of the United States had not been
long convened before it enacted on September
1, 1789, "An Act for Registering and Clearing
Vessels, Regulating the Coasting Trade, and for
other purposes." Section 1 of this law provided
that for any ship or vessel to obtain the benefits
of American registry, it must belong wholly to a
citizen or citizens of the United States "and no
other." (1 Stat. at L., 55.) That Act was shortly
after repealed, but the same idea was carried
into the Acts of Congress of December 31, 1792
and February 18, 1793. (1 Stat. at L., 287,
305.).Section 4 of the Act of 1792 provided that
in order to obtain the registry of any vessel, an
oath shall be taken and subscribed by the
owner, or by one of the owners thereof, before
the officer authorized to make such registry,
declaring, "that there is no subject or citizen of
any foreign prince or state, directly or indirectly,
by way of trust, confidence, or otherwise,
interested in such vessel, or in the profits or
issues thereof." Section 32 of the Act of 1793
even went so far as to say "that if any licensed
ship or vessel shall be transferred to any person
who is not at the time of such transfer a citizen
of and resident within the United States, ...
every such vessel with her tackle, apparel, and
furniture, and the cargo found on board her,
shall be forefeited." In case of alienation to a
foreigner, Chief Justice Marshall said that all the
privileges of an American bottom were ipso
facto forfeited. (U.S. vs. Willings and Francis
[1807], 4 Cranch, 48.) Even as late as 1873, the
Attorney-General of the United States was of
the opinion that under the provisions of the Act
of December 31, 1792, no vessel in which a
foreigner is directly or indirectly interested can
lawfully be registered as a vessel of the United.
States. (14 Op. Atty.-Gen. [U.S.], 340.)
These laws continued in force without contest,
although possibly the Act of March 3, 1825, may
have affected them, until amended by the Act of
May 28, 1896 (29 Stat. at L., 188) which
extended the privileges of registry from vessels
wholly owned by a citizen or citizens of the
United States to corporations created under the
laws of any of the states thereof. The law, as
amended, made possible the deduction that a
vessel belonging to a domestic corporation was
entitled to registry or enrollment even though
some stock of the company be owned by aliens.
The right of ownership of stock in a corporation
was thereafter distinct from the right to hold the
property by the corporation
(Humphreys vs. McKissock [1890], 140 U.S.,
304; Queen vs. Arnaud [1846], 9 Q. B., 806; 29
Op. Atty.-Gen. [U.S.],188.)
On American occupation of the Philippines, the
new government found a substantive law in
operation in the Islands with a civil law history
which it wisely continued in force Article fifteen
of the Spanish Code of Commerce permitted
any foreigner to engage in Philippine trade if he
had legal capacity to do so under the laws of his
nation. When the Philippine Commission came
to enact the Customs Administrative Act (No.
355) in 1902, it returned to the old American
policy of limiting the protection and flag of the
United States to vessels owned by citizens of
the United States or by native inhabitants of the
Philippine Islands (Sec. 117.) Two years later,
the same body reverted to the existing
Congressional law by permitting certification to
be issued to a citizen of the United States or to
a corporation or company created under the
laws of the United States or of any state thereof
or of the Philippine Islands (Act No. 1235, sec.
3.) The two administration codes repeated the
same provisions with the necessary
amplification of inclusion of citizens or native
inhabitants of the Philippine Islands (Adm. Code
of 1916, sec. 1345; Adm. Code of 1917, sec.
1172). And now Act No. 2761 has returned to
the restrictive idea of the original Customs
Administrative Act which in turn was merely a
reflection of the statutory language of the first
American Congress.
Provisions such as those in Act No. 2761, which
deny to foreigners the right to a certificate of
Philippine registry, are thus found not to be as
radical as a first reading would make them
appear.
Without any subterfuge, the apparent purpose
of the Philippine Legislature is seen to be to
enact an anti-alien shipping act. The ultimate
purpose of the Legislature is to encourage
Philippine ship-building. This, without doubt,
has, likewise, been the intention of the United
States Congress in passing navigation or tariff
laws on different occasions. The object of such
a law, the United States Supreme Court once
said, was to encourage American trade,
navigation, and ship-building by giving
American ship-owners exclusive privileges. (Old
Dominion Steamship Co. vs.Virginia [1905], 198
U.S., 299; Kent's Commentaries, Vol. 3, p. 139.)
In the concurring opinion of Justice Johnson in
Gibbons vs. Ogden ([1824], 9 Wheat., 1) is
found the following:
Licensing acts, in fact, in legislation,
are universally restraining acts; as, for
example, acts licensing gaming
houses, retailers of spirituous liquors,
etc. The act, in this instance, is
distinctly of that character, and forms
part of an extensive system, the object
of which is to encourage American
shipping, and place them on an equal
footing with the shipping of other
nations. Almost every commercial
nation reserves to its own subjects a
monopoly of its coasting trade; and a
countervailing privilege in favor of
American shipping is contemplated, in
the whole legislation of the United
States on this subject. It is not to give
the vessel an American character, that
the license is granted; that effect has
been correctly attributed to the act of
her enrollment. But it is to confer on
her American privileges, as
contradistinguished from foreign; and
to preserve the. Government from
fraud by foreigners, in surreptitiously
intruding themselves into the American
commercial marine, as well as frauds
upon the revenue in the trade
 coastwise, that this whole system is
projected.
The United States Congress in assuming its
grave responsibility of legislating wisely for a
new country did so imbued with a spirit of
Americanism. Domestic navigation and trade, it
decreed, could only be carried on by citizens of
the United States. If the representatives of the
American people acted in this patriotic manner
to advance the national policy, and if their action
was accepted without protest in the courts, who
can say that they did not enact such beneficial
laws under the all-pervading police power, with
the prime motive of safeguarding the country
and of promoting its prosperity? Quite similarly,
the Philippine Legislature made up entirely of
Filipinos, representing the mandate of the
Filipino people and the guardian of their rights,
acting under practically autonomous powers,
and imbued with a strong sense of Philippinism,
has desired for these Islands safety from foreign
interlopers, the use of the common property
exclusively by its citizens and the citizens of the
United States, and protection for the common
good of the people. Who can say, therefore,
especially can a court, that with all the facts and
circumstances affecting the Filipino people
before it, the Philippine Legislature has erred in
the enactment of Act No. 2761?
Commission (Legislature), we deem it our duty
not to give it a construction which would be
repugnant to an Act of Congress, if the
language of the statute is fairly susceptible of
another construction not in conflict with the
higher law." (In re Guariña [1913], 24. Phil., 36;
U.S. vs. Ten Yu [1912], 24 Phil., 1.) That is the
true construction which will best carry legislative
intention into effect.
With full consciousness of the importance of the
question, we nevertheless are clearly of the
opinion that the limitation of domestic ownership
for purposes of obtaining a certificate of
Philippine registry in the coastwise trade to
citizens of the Philippine Islands, and to citizens
of the United States, does not violate the
provisions of paragraph 1 of section 3 of the Act
of Congress of August 29, 1916 No treaty right
relied upon Act No. 2761 of the Philippine
Legislature is held valid and constitutional .
The petition for a writ of mandamus is denied,
with costs against the petitioner. So ordered.
Arellano, C.J., Torres, Johnson, Araullo, Street,
Avanceña and Moir, JJ., concur.

Surely, the members of the judiciary are not

expected to live apart from active life, in
monastic seclusion amidst dusty tomes and
ancient records, but, as keen spectators of
passing events and alive to the dictates of the
general — the national — welfare, can incline
the scales of their decisions in favor of that
solution which will most effectively promote the
public policy. All the presumption is in favor of
the constitutionally of the law and without good
and strong reasons, courts should not attempt
to nullify the action of the Legislature. "In
construing a statute enacted by the Philippine
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-19550 June 19, 1967
HARRY S. STONEHILL, ROBERT P.
BROOKS, JOHN J. BROOKS and KARL
BECK, petitioners,
vs.
HON. JOSE W. DIOKNO, in his capacity as
SECRETARY OF JUSTICE; JOSE LUKBAN, in
his capacity as Acting Director, National Bureau
of Investigation; SPECIAL PROSECUTORS
PEDRO D. CENZON, EFREN I. PLANA and
MANUEL VILLAREAL, JR. and ASST.
FISCAL MANASES G. REYES; JUDGE
AMADO ROAN, Municipal Court of Manila;
JUDGE ROMAN CANSINO, Municipal Court of
Manila; JUDGE HERMOGENES CALUAG,
Court of First Instance of Rizal-Quezon City
Branch, and JUDGE DAMIAN JIMENEZ,
Municipal Court of Quezon City, respondents.
Paredes, Poblador, Cruz and Nazareno and Meer,
Meer and Meer and Juan T. David for petitioners.
Office of the Solicitor General Arturo A. Alafriz,
Assistant Solicitor General Pacifico P. de Castro,
Assistant Solicitor General Frine C. Zaballero,
Solicitor Camilo D. Quiason and Solicitor C. Padua
for respondents.
CONCEPCION, C.J.:
Upon application of the officers of the government
named on the margin1 — hereinafter referred to as
Respondents-Prosecutors — several judges2 —
hereinafter referred to as Respondents-Judges —
issued, on different dates,3 a total of 42 search
warrants against petitioners herein4 and/or the
corporations of which they were officers,5 directed to
the any peace officer, to search the persons above-
named and/or the premises of their offices,
warehouses and/or residences, and to seize and take
possession of the following personal property to wit:
Books of accounts, financial records,
vouchers, correspondence, receipts,
ledgers, journals, portfolios, credit
journals, typewriters, and other documents
and/or papers showing all business
transactions including disbursements
receipts, balance sheets and profit and loss
statements and Bobbins (cigarette
wrappers).
as "the subject of the offense; stolen or embezzled
and proceeds or fruits of the offense," or "used or
intended to be used as the means of committing the
offense," which is described in the applications
adverted to above as "violation of Central Bank
Laws, Tariff and Customs Laws, Internal Revenue
(Code) and the Revised Penal Code."
Alleging that the aforementioned search warrants are
null and void, as contravening the Constitution and
the Rules of Court — because, inter alia: (1) they do
not describe with particularity the documents, books
and things to be seized; (2) cash money, not
mentioned in the warrants, were actually seized; (3)
the warrants were issued to fish evidence against the
aforementioned petitioners in deportation cases filed
against them; (4) the searches and seizures were
made in an illegal manner; and (5) the documents,
papers and cash money seized were not delivered to
the courts that issued the warrants, to be disposed of
in accordance with law — on March 20, 1962, said
petitioners filed with the Supreme Court this original
action for certiorari, prohibition, mandamus and
injunction, and prayed that, pending final disposition
of the present case, a writ of preliminary injunction
be issued restraining Respondents-Prosecutors, their
agents and /or representatives from using the effects
seized as aforementioned or any copies thereof, in
the deportation cases already adverted to, and that, in
due course, thereafter, decision be rendered quashing
the contested search warrants and declaring the same
null and void, and commanding the respondents,
their agents or representatives to return to petitioners
herein, in accordance with Section 3, Rule 67, of the
Rules of Court, the documents, papers, things and
cash moneys seized or confiscated under the search
warrants in question.
In their answer, respondents-prosecutors
alleged, 6 (1) that the contested search warrants are
valid and have been issued in accordance with law;
(2) that the defects of said warrants, if any, were
cured by petitioners' consent; and (3) that, in any
event, the effects seized are admissible in evidence
against herein petitioners, regardless of the alleged
illegality of the aforementioned searches and
seizures.
On March 22, 1962, this Court issued the writ of
preliminary injunction prayed for in the petition.
However, by resolution dated June 29, 1962, the writ
was partially lifted or dissolved, insofar as the
papers, documents and things seized from the offices
of the corporations above mentioned are concerned;
but, the injunction was maintained as regards the
papers, documents and things found and seized in the
residences of petitioners herein.7
Thus, the documents, papers, and things seized under
the alleged authority of the warrants in question may
be split into two (2) major groups, namely: (a) those
found and seized in the offices of the aforementioned
corporations, and (b) those found and seized in the
residences of petitioners herein.
As regards the first group, we hold that petitioners
herein have no cause of action to assail the legality
of the contested warrants and of the seizures made in
pursuance thereof, for the simple reason that said
corporations have their respective personalities,
separate and distinct from the personality of herein
petitioners, regardless of the amount of shares of
stock or of the interest of each of them in said
corporations, and whatever the offices they hold
therein may be.8 Indeed, it is well settled that the
legality of a seizure can be contested only by the
party whose rights have been impaired thereby,9 and
that the objection to an unlawful search and seizure
is purely personal and cannot be availed of by third
parties. 10 Consequently, petitioners herein may not
validly object to the use in evidence against them of
the documents, papers and things seized from the
offices and premises of the corporations adverted to
above, since the right to object to the admission of
said papers in evidence belongs exclusively to the
corporations, to whom the seized effects belong, and
may not be invoked by the corporate officers in
proceedings against them in their individual
capacity. 11 Indeed, it has been held:
. . . that the Government's action in gaining
possession of papers belonging to
the corporation did not relate to nor did it
affect the personal defendants. If these
papers were unlawfully seized and thereby
the constitutional rights of or any one were
invaded, they were the rights of
the corporation and not the rights of
the other defendants. Next, it is clear that a
question of the lawfulness of a seizure can
be raised only by one whose rights have
been invaded. Certainly, such a seizure, if
unlawful, could not affect the
constitutional rights of defendants whose
property had not been seized or the
privacy of whose homes had not been
disturbed; nor could they claim for
themselves the benefits of the Fourth
Amendment, when its violation, if any,
was with reference to the rights
of another. Remus vs. United
States (C.C.A.)291 F. 501, 511. It follows,
therefore, that the question of the
admissibility of the evidence based on an
alleged unlawful search and seizure
does not extend to the personal defendants
but embraces only the corporation whose
property was taken. . . . (A Guckenheimer
& Bros. Co. vs. United States, [1925] 3 F.
2d. 786, 789, Emphasis supplied.)
With respect to the documents, papers and things
seized in the residences of petitioners herein, the
aforementioned resolution of June 29, 1962, lifted
the writ of preliminary injunction previously issued
by this Court, 12 thereby, in effect, restraining herein
Respondents-Prosecutors from using them in
evidence against petitioners herein.
In connection with said documents, papers and
things, two (2) important questions need be settled,
namely: (1) whether the search warrants in question,
and the searches and seizures made under the
authority thereof, are valid or not, and (2) if the
answer to the preceding question is in the negative,
whether said documents, papers and things may be
used in evidence against petitioners
herein.1äwphï1.ñët
Petitioners maintain that the aforementioned search
warrants are in the nature of general warrants and
that accordingly, the seizures effected upon the
authority there of are null and void. In this
connection, the Constitution 13 provides:
The right of the people to be secure in their
persons, houses, papers, and effects against
unreasonable searches and seizures shall
not be violated, and no warrants shall issue
but upon probable cause, to be determined
by the judge after examination under oath
or affirmation of the complainant and the
witnesses he may produce, and particularly
describing the place to be searched, and
the persons or things to be seized.
Two points must be stressed in connection with this
constitutional mandate, namely: (1) that no warrant
shall issue but upon probable cause, to be
determined by the judge in the manner set forth in
said provision; and (2) that the warrant
shall particularly describe the things to be seized.
None of these requirements has been complied with
in the contested warrants. Indeed, the same were
issued upon applications stating that the natural and
juridical person therein named had committed a
"violation of Central Ban Laws, Tariff and Customs
Laws, Internal Revenue (Code) and Revised Penal
Code." In other words, no specific offense had been
alleged in said applications. The averments thereof
with respect to the offense committed were abstract.
As a consequence, it was impossible for the judges
who issued the warrants to have found the existence
of probable cause, for the same presupposes the
introduction of competent proof that the party
against whom it is sought has
performed particular acts, or
committed specific omissions, violating a given
provision of our criminal laws. As a matter of fact,
the applications involved in this case do not allege
any specific acts performed by herein petitioners. It
would be the legal heresy, of the highest order, to
convict anybody of a "violation of Central Bank
Laws, Tariff and Customs Laws, Internal Revenue
(Code) and Revised Penal Code," — as alleged in
the aforementioned applications — without reference
to any determinate provision of said laws or
To uphold the validity of the warrants in question
would be to wipe out completely one of the most
fundamental rights guaranteed in our Constitution,
for it would place the sanctity of the domicile and
the privacy of communication and correspondence at
the mercy of the whims caprice or passion of peace
officers. This is precisely the evil sought to be
remedied by the constitutional provision above
quoted — to outlaw the so-called general warrants. It
is not difficult to imagine what would happen, in
times of keen political strife, when the party in
power feels that the minority is likely to wrest it,
even though by legal means.
Such is the seriousness of the irregularities
committed in connection with the disputed search
warrants, that this Court deemed it fit to amend
Section 3 of Rule 122 of the former Rules of
Court 14 by providing in its counterpart, under the
Revised Rules of Court 15 that "a search warrant shall
not issue but upon probable cause in connection with
one specific offense." Not satisfied with this
qualification, the Court added thereto a paragraph,
directing that "no search warrant shall issue for more
than one specific offense."
The grave violation of the Constitution made in the
application for the contested search warrants was
compounded by the description therein made of the
effects to be searched for and seized, to wit:
Books of accounts, financial records,
vouchers, journals, correspondence,
receipts, ledgers, portfolios, credit
journals, typewriters, and other documents
and/or papers showing all business
transactions including disbursement
receipts, balance sheets and related profit
and loss statements.
Thus, the warrants authorized the search for and
seizure of records pertaining to all business
transactions of petitioners herein, regardless of
whether the transactions were legal or illegal. The
warrants sanctioned the seizure of all records of the
petitioners and the aforementioned corporations,
whatever their nature, thus openly contravening the
explicit command of our Bill of Rights — that the
things to be seized be particularly described — as
well as tending to defeat its major objective: the
elimination of general warrants.
Relying upon Moncado vs. People's Court (80 Phil.
1), Respondents-Prosecutors maintain that, even if
the searches and seizures under consideration were
unconstitutional, the documents, papers and things
thus seized are admissible in evidence against
petitioners herein. Upon mature deliberation,
however, we are unanimously of the opinion that the
position taken in the Moncado case must be
abandoned. Said position was in line with the
American common law rule, that the criminal should
not be allowed to go free merely "because the
constable has blundered," 16 upon the theory that the
constitutional prohibition against unreasonable
searches and seizures is protected by means other
than the exclusion of evidence unlawfully
obtained, 17 such as the common-law action for
damages against the searching officer, against the
party who procured the issuance of the search
warrant and against those assisting in the execution
of an illegal search, their criminal punishment,
resistance, without liability to an unlawful seizure,
and such other legal remedies as may be provided by
other laws.
However, most common law jurisdictions have
already given up this approach and eventually
adopted the exclusionary rule, realizing that this
is the only practical means of enforcing the
constitutional injunction against unreasonable
searches and seizures. In the language of Judge
Learned Hand:
As we understand it, the reason for the
exclusion of evidence competent as such,
which has been unlawfully acquired, is that
exclusion is the only practical way of
enforcing the constitutional privilege. In
earlier times the action of trespass against
the offending official may have been
protection enough; but that is true no
longer. Only in case the prosecution which
itself controls the seizing officials, knows
that it cannot profit by their wrong will
that wrong be repressed.18
In fact, over thirty (30) years before, the Federal
Supreme Court had already declared:
If letters and private documents can thus
be seized and held and used in evidence
against a citizen accused of an offense, the
protection of the 4th Amendment,
declaring his rights to be secure against
such searches and seizures, is of no value,
and, so far as those thus placed are
concerned, might as well be stricken from
the Constitution. The efforts of the courts
and their officials to bring the guilty to
punishment, praiseworthy as they are, are
not to be aided by the sacrifice of those
great principles established by years of
endeavor and suffering which have
resulted in their embodiment in the
fundamental law of the land.19
This view was, not only reiterated, but, also,
broadened in subsequent decisions on the same
Federal Court. 20After reviewing previous decisions
thereon, said Court held, in Mapp vs. Ohio (supra.):
. . . Today we once again examine the
Wolf's constitutional documentation of the
right of privacy free from unreasonable
state intrusion, and after its dozen years on
our books, are led by it to close the only
courtroom door remaining open to
evidence secured by official lawlessness in
flagrant abuse of that basic right, reserved
to all persons as a specific guarantee
against that very same unlawful conduct.
We hold that all evidence obtained by
searches and seizures in violation of the
Constitution is, by that same authority,
inadmissible in a State.
Since the Fourth Amendment's right of
privacy has been declared enforceable
against the States through the Due Process
Clause of the Fourteenth, it is enforceable
against them by the same sanction of
exclusion as it used against the Federal
Government. Were it otherwise, then just
as without the Weeks rule the assurance
against unreasonable federal searches and
seizures would be "a form of words,"
valueless and underserving of mention in a
perpetual charter of inestimable human
liberties, so too, without that rule the
freedom from state invasions of privacy
would be so ephemeral and so neatly
severed from its conceptual nexus with the
freedom from all brutish means of
coercing evidence as not to permit this
Court's high regard as a freedom "implicit
in the concept of ordered liberty." At the
time that the Court held in Wolf that the
amendment was applicable to the States
through the Due Process Clause, the cases
of this Court as we have seen, had
steadfastly held that as to federal officers
the Fourth Amendment included the
exclusion of the evidence seized in
violation of its provisions. Even Wolf
"stoutly adhered" to that proposition. The
right to when conceded operatively
enforceable against the States, was not
susceptible of destruction by avulsion of
the sanction upon which its protection and
enjoyment had always been deemed
dependent under the Boyd, Weeks and
Silverthorne Cases. Therefore, in
extending the substantive protections of
due process to all constitutionally
unreasonable searches — state or federal
— it was logically and constitutionally
necessarily that the exclusion doctrine —
an essential part of the right to privacy —
be also insisted upon as an essential
ingredient of the right newly recognized by
the Wolf Case. In short, the admission of
the new constitutional Right by Wolf could
not tolerate denial of its most important
constitutional privilege, namely, the
exclusion of the evidence which an
accused had been forced to give by reason
of the unlawful seizure. To hold otherwise
is to grant the right but in reality to
withhold its privilege and enjoyment. Only
last year the Court itself recognized
that the purpose of the exclusionary rule
to "is to deter — to compel respect for the
constitutional guaranty in the only
effectively available way — by removing
the incentive to disregard it" . . . .
The ignoble shortcut to conviction left
open to the State tends to destroy the entire
system of constitutional restraints on
which the liberties of the people rest.
Having once recognized that the right to
privacy embodied in the Fourth
Amendment is enforceable against the
States, and that the right to be secure
against rude invasions of privacy by state
officers is, therefore constitutional in
origin, we can no longer permit that right
to remain an empty promise. Because it is
enforceable in the same manner and to like
effect as other basic rights secured by its
Due Process Clause, we can no longer
permit it to be revocable at the whim of
any police officer who, in the name of law
enforcement itself, chooses to suspend its
enjoyment. Our decision, founded on
reason and truth, gives to the individual no
more than that which the Constitution
guarantees him to the police officer no less
than that to which honest law enforcement
is entitled, and, to the courts, that judicial
integrity so necessary in the true
administration of justice. (emphasis ours.)
Indeed, the non-exclusionary rule is contrary, not
only to the letter, but also, to the spirit of the
constitutional injunction against unreasonable
searches and seizures. To be sure, if the applicant for
a search warrant has competent evidence to establish
probable cause of the commission of a given crime
by the party against whom the warrant is intended,
then there is no reason why the applicant should not
comply with the requirements of the fundamental
law. Upon the other hand, if he has no such
competent evidence, then it is not possible for the
Judge to find that there is probable cause, and,
hence, no justification for the issuance of the
warrant. The only possible explanation (not
justification) for its issuance is the necessity
of fishing evidence of the commission of a crime.
But, then, this fishing expedition is indicative of the
absence of evidence to establish a probable cause.
Moreover, the theory that the criminal prosecution of
those who secure an illegal search warrant and/or
make unreasonable searches or seizures would
suffice to protect the constitutional guarantee under
consideration, overlooks the fact that violations
thereof are, in general, committed By agents of the
party in power, for, certainly, those belonging to the
minority could not possibly abuse a power they do
not have. Regardless of the handicap under which
the minority usually — but, understandably — finds
itself in prosecuting agents of the majority, one must
not lose sight of the fact that the psychological and
moral effect of the possibility 21 of securing their
conviction, is watered down by the pardoning power
of the party for whose benefit the illegality had been
committed.
In their Motion for Reconsideration and Amendment
of the Resolution of this Court dated June 29, 1962,
petitioners allege that Rooms Nos. 81 and 91 of
Carmen Apartments, House No. 2008, Dewey
Boulevard, House No. 1436, Colorado Street, and
Room No. 304 of the Army-Navy Club, should be
included among the premises considered in said
Resolution as residences of herein petitioners, Harry
S. Stonehill, Robert P. Brook, John J. Brooks and
Karl Beck, respectively, and that, furthermore, the
records, papers and other effects seized in the offices
of the corporations above referred to include
personal belongings of said petitioners and other
effects under their exclusive possession and control,
for the exclusion of which they have a standing
under the latest rulings of the federal courts of
federal courts of the United States. 22
We note, however, that petitioners' theory, regarding
their alleged possession of and control over the
aforementioned records, papers and effects, and the
alleged "personal" nature thereof, has Been
Advanced, not in their petition or amended petition
herein, but in the Motion for Reconsideration and
Amendment of the Resolution of June 29, 1962. In
other words, said theory would appear to be
readjustment of that followed in said petitions, to suit
the approach intimated in the Resolution sought to
be reconsidered and amended. Then, too, some of the
affidavits or copies of alleged affidavits attached to
said motion for reconsideration, or submitted in
support thereof, contain either inconsistent
allegations, or allegations inconsistent with the
theory now advanced by petitioners herein.
Upon the other hand, we are not satisfied that the
allegations of said petitions said motion for
reconsideration, and the contents of the
aforementioned affidavits and other papers submitted
in support of said motion, have sufficiently
established the facts or conditions contemplated in
the cases relied upon by the petitioners; to warrant
application of the views therein expressed, should
we agree thereto. At any rate, we do not deem it
necessary to express our opinion thereon, it being
best to leave the matter open for determination in
appropriate cases in the future.
We hold, therefore, that the doctrine adopted in the
Moncado case must be, as it is hereby, abandoned;
that the warrants for the search of three (3)
residences of herein petitioners, as specified in the
Resolution of June 29, 1962, are null and void; that
the searches and seizures therein made are illegal;
that the writ of preliminary injunction heretofore
issued, in connection with the documents, papers and
other effects thus seized in said residences of herein
petitioners is hereby made permanent; that the writs
prayed for are granted, insofar as the documents,
papers and other effects so seized in the
aforementioned residences are concerned; that the
aforementioned motion for Reconsideration and
Amendment should be, as it is hereby, denied; and
that the petition herein is dismissed and the writs
prayed for denied, as regards the documents, papers
and other effects seized in the twenty-nine (29)
places, offices and other premises enumerated in the
same Resolution, without special pronouncement as
to costs.
It is so ordered.
Reyes, J.B.L., Dizon, Makalintal, Bengzon, J.P.,
Zaldivar and Sanchez, JJ., concur.
CASTRO, J., concurring and dissenting:
From my analysis of the opinion written by Chief
Justice Roberto Concepcion and from the import of
the deliberations of the Court on this case, I gather
the following distinct conclusions:
1. All the search warrants served by the
National Bureau of Investigation in this
case are general warrants and are therefore
proscribed by, and in violation of,
paragraph 3 of section 1 of Article III (Bill
of Rights) of the Constitution;
2. All the searches and seizures conducted
under the authority of the said search
warrants were consequently illegal;
3. The non-exclusionary rule enunciated
in Moncado vs. People, 80 Phil. 1, should
be, and is declared, abandoned;
4. The search warrants served at the three
residences of the petitioners
are expressly declared null and void the
searches and seizures therein made
are expressly declared illegal; and the writ
of preliminary injunction heretofore issued
against the use of the documents, papers
and effect seized in the said residences is
made permanent; and
5. Reasoning that the petitioners have not
in their pleadings satisfactorily
demonstrated that they have legal standing
to move for the suppression of the
documents, papers and effects seized in the
places other than the three residences
adverted to above, the opinion written by
the Chief
Justice refrains from expressly declaring as
null and void the such warrants served at
such other places and as illegal the
searches and seizures made therein, and
leaves "the matter open for determination
in appropriate cases in the future."
It is precisely the position taken by the Chief Justice
summarized in the immediately preceding paragraph
(numbered 5) with which I am not in accord.
I do not share his reluctance or unwillingness to
expressly declare, at this time, the nullity of the
search warrants served at places other than the three
residences, and the illegibility of the searches and
seizures conducted under the authority thereof. In
my view even the exacerbating passions and
prejudices inordinately generated by the
environmental political and moral developments of
this case should not deter this Court from
forthrightly laying down the law not only for this
case but as well for future cases and future
generations. All the search warrants, without
exception, in this case are admittedly general,
blanket and roving warrants and are therefore
admittedly and indisputably outlawed by the
Constitution; and the searches and seizures made
were therefore unlawful. That the petitioners, let us
assume in gratia argumente, have no legal standing
to ask for the suppression of the papers, things and
effects seized from places other than their
residences, to my mind, cannot in any manner affect,
alter or otherwise modify the intrinsic nullity of the
search warrants and the intrinsic illegality of the
searches and seizures made thereunder. Whether or
not the petitioners possess legal standing the said
warrants are void and remain void, and the searches
and seizures were illegal and remain illegal. No
inference can be drawn from the words of the
Constitution that "legal standing" or the lack of it is a
determinant of the nullity or validity of a search
warrant or of the lawfulness or illegality of a search
or seizure.
On the question of legal standing, I am of the
conviction that, upon the pleadings submitted to this
Court the petitioners have the requisite legal standing
to move for the suppression and return of the
documents, papers and effects that were seized from
places other than their family residences.
Our constitutional provision on searches and seizures
was derived almost verbatim from the Fourth
Amendment to the United States Constitution. In the
many years of judicial construction and
interpretation of the said constitutional provision, our
courts have invariably regarded as doctrinal the
pronouncement made on the Fourth Amendment by
federal courts, especially the Federal Supreme Court
and the Federal Circuit Courts of Appeals.
The U.S. doctrines and pertinent cases on standing to
move for the suppression or return of documents,
papers and effects which are the fruits of an unlawful
search and seizure, may be summarized as follows;
(a) ownership of documents, papers and effects gives
"standing;" (b) ownership and/or control or
possession — actual or constructive — of premises
searched gives "standing"; and (c) the "aggrieved
person" doctrine where the search warrant and the
sworn application for search warrant are "primarily"
directed solely and exclusively against the
"aggrieved person," gives "standing."
An examination of the search warrants in this case
will readily show that, excepting three, all were
directed against the petitioners personally. In some
of them, the petitioners were named personally,
followed by the designation, "the President and/or
General Manager" of the particular corporation. The
three warrants excepted named three corporate
defendants. But the
"office/house/warehouse/premises" mentioned in the
said three warrants were also the same
"office/house/warehouse/premises" declared to be
owned by or under the control of the petitioners in
all the other search warrants directed against the
petitioners and/or "the President and/or General
Manager" of the particular corporation. (see pages 5-
24 of Petitioners' Reply of April 2, 1962). The
searches and seizures were to be made, and were
actually made, in the
"office/house/warehouse/premises" owned by or
under the control of the petitioners.
Ownership of matters seized gives "standing."
Ownership of the properties seized alone entitles the
petitioners to bring a motion to return and suppress,
and gives them standing as persons aggrieved by an
unlawful search and seizure regardless of their
location at the time of seizure. Jones vs. United
States, 362 U.S. 257, 261 (1960) (narcotics stored in
the apartment of a friend of the defendant); Henzel
vs. United States, 296 F. 2d. 650, 652-53 (5th Cir.
1961), (personal and corporate papers of corporation
of which the defendant was president), United States
vs. Jeffers, 342 U.S. 48 (1951) (narcotics seized in an
apartment not belonging to the defendant); Pielow
vs. United States, 8 F. 2d 492, 493 (9th Cir. 1925)
(books seized from the defendant's sister but
belonging to the defendant); Cf. Villano vs. United
States, 310 F. 2d 680, 683 (10th Cir. 1962) (papers
seized in desk neither owned by nor in exclusive
possession of the defendant).
In a very recent case (decided by the U.S. Supreme
Court on December 12, 1966), it was held that under
the constitutional provision against unlawful
searches and seizures, a person places himself or his
property within a constitutionally protected area, be
it his home or his office, his hotel room or his
automobile:
Where the argument falls is in its
misapprehension of the fundamental nature
and scope of Fourth Amendment
protection. What the Fourth Amendment
protects is the security a man relies upon
when he places himself or his property
within a constitutionally protected area, be
it his home or his office, his hotel room or
his automobile. There he is protected from
unwarranted governmental intrusion. And
when he puts some thing in his filing
cabinet, in his desk drawer, or in his
pocket, he has the right to know it will be
secure from an unreasonable search or an
unreasonable seizure. So it was that the
Fourth Amendment could not tolerate the
warrantless search of the hotel room
in Jeffers, the purloining of the petitioner's
private papers in Gouled, or the
surreptitious electronic surveilance
in Silverman. Countless other cases which
have come to this Court over the years
have involved a myriad of differing factual
contexts in which the protections of the
Fourth Amendment have been
appropriately invoked. No doubt, the
future will bring countless others. By
nothing we say here do we either foresee
or foreclose factual situations to which the
Fourth Amendment may be applicable.
(Hoffa vs. U.S., 87 S. Ct. 408 (December
12, 1966). See also U.S. vs. Jeffers, 342
U.S. 48, 72 S. Ct. 93 (November 13,
1951). (Emphasis supplied).
Control of premises searched gives "standing."
Independent of ownership or other personal interest
in the records and documents seized, the petitioners
have standing to move for return and suppression by
virtue of their proprietary or leasehold interest in
many of the premises searched. These proprietary
and leasehold interests have been sufficiently set
forth in their motion for reconsideration and need not
be recounted here, except to emphasize that the
petitioners paid rent, directly or indirectly, for
practically all the premises searched (Room 91, 84
Carmen Apts; Room 304, Army & Navy Club;
Premises 2008, Dewey Boulevard; 1436 Colorado
Street); maintained personal offices within the
corporate offices (IBMC, USTC); had made
improvements or furnished such offices; or had paid
for the filing cabinets in which the papers were
stored (Room 204, Army & Navy Club); and
individually, or through their respective spouses,
owned the controlling stock of the corporations
involved. The petitioners' proprietary interest in
most, if not all, of the premises searched therefore
independently gives them standing to move for the
return and suppression of the books, papers and
affects seized therefrom.
In Jones vs. United States, supra, the U.S. Supreme
Court delineated the nature and extent of the interest
in the searched premises necessary to maintain a
motion to suppress. After reviewing what it
considered to be the unduly technical standard of the
then prevailing circuit court decisions, the Supreme
Court said (362 U.S. 266):
We do not lightly depart from this course
of decisions by the lower courts. We are
persuaded, however, that it is
unnecessarily and ill-advised to import into
the law surrounding the constitutional right
to be free from unreasonable searches and
seizures subtle distinctions, developed and
refined by the common law in evolving the
body of private property law which, more
than almost any other branch of law, has
been shaped by distinctions whose validity
is largely historical. Even in the area from
which they derive, due consideration has
led to the discarding of those distinctions
in the homeland of the common law. See
Occupiers' Liability Act, 1957, 5 and 6
Eliz. 2, c. 31, carrying out Law Reform
Committee, Third Report, Cmd. 9305.
Distinctions such as those between
"lessee", "licensee," "invitee," "guest,"
often only of gossamer strength, ought not
be determinative in fashioning procedures
ultimately referable to constitutional
safeguards. See also Chapman vs. United
States, 354 U.S. 610, 616-17 (1961).
It has never been held that a person with requisite
interest in the premises searched must own the
property seized in order to have standing in a motion
to return and suppress. In Alioto vs. United States,
216 F. Supp. 48 (1963), a Bookkeeper for several
corporations from whose apartment the corporate
records were seized successfully moved for their
return. In United States vs. Antonelli, Fireworks Co.,
53 F. Supp. 870, 873 (W D. N. Y. 1943), the
corporation's president successfully moved for the
return and suppression is to him of both personal and
corporate documents seized from his home during
the course of an illegal search:
The lawful possession by Antonelli of
documents and property, "either his own
or the corporation's was entitled to
protection against unreasonable search and
seizure. Under the circumstances in the
case at bar, the search and seizure were
unreasonable and unlawful. The motion for
the return of seized article and the
suppression of the evidence so obtained
should be granted. (Emphasis supplied).
Time was when only a person who had property in
interest in either the place searched or the articles
seize had the necessary standing to invoke the
protection of the exclusionary rule. But
in MacDonald vs. Unite States, 335 U.S. 461 (1948),
Justice Robert Jackson joined by Justice Felix
Frankfurter, advanced the view that "even a guest
may expect the shelter of the rooftree he is under
against criminal intrusion." This view finally became
the official view of the U.S. Supreme Court and was
articulated in United States vs. Jeffers, 432 U.S 48
(1951). Nine years later, in 1960, in Jones vs. Unite
States, 362 U.S. 257, 267, the U.S. Supreme Court
went a step further. Jones was a mere guest in the
apartment unlawfully searched but the Court
nonetheless declared that the exclusionary rule
protected him as well. The concept of "person
aggrieved by an unlawful search and seizure" was
enlarged to include "anyone legitimately on premise
where the search occurs."
Shortly after the U.S. Supreme
Court's Jones decision the U.S. Court of Appeals for
the Fifth Circuit held that the defendant organizer,
sole stockholder and president of a corporation had
standing in a mail fraud prosecution against him to
demand the return and suppression of corporate
property. Henzel vs. United States, 296 F 2d 650,
652 (5th Cir. 1961), supra. The court conclude that
the defendant had standing on two independent
grounds: First — he had a sufficient interest in the
property seized, and second — he had an adequate
interest in the premises searched (just like in the case
at bar). A postal inspector had unlawfully searched
the corporation' premises and had seized most of the
corporation's book and records. Looking to Jones,
the court observed:
Jones clearly tells us, therefore, what is not
required qualify one as a "person
aggrieved by an unlawful search and
seizure." It tells us that appellant should
not have been precluded from objecting to
the Postal Inspector's search and seizure of
the corporation's books and records merely
because the appellant did not show
ownership or possession of the books and
records or a substantial possessory interest
in the invade premises . . . (Henzel vs.
United States, 296 F. 2d at 651). .
Henzel was soon followed by Villano vs. United
States, 310 F. 2d 680, 683, (10th Cir. 1962).
In Villano, police officers seized two notebooks from
a desk in the defendant's place of employment; the
defendant did not claim ownership of either; he
asserted that several employees (including himself)
used the notebooks. The Court held that the
employee had a protected interest and that there also
was an invasion of privacy.
Both Henzel and Villano considered also the fact that
the search and seizure were "directed at" the moving
defendant. Henzel vs. United States, 296 F. 2d at
682; Villano vs. United States, 310 F. 2d at 683.
In a case in which an attorney closed his law office,
placed his files in storage and went to Puerto Rico,
the Court of Appeals for the Eighth Circuit
recognized his standing to move to quash as
unreasonable search and seizure under the Fourth
Amendment of the U.S. Constitution a grand jury
subpoena duces tecum directed to the custodian of
his files. The Government contended that the
petitioner had no standing because the books and
papers were physically in the possession of the
custodian, and because the subpoena was directed
against the custodian. The court rejected the
contention, holding that
Schwimmer legally had such possession,
control and unrelinquished personal rights
in the books and papers as not to enable
the question of unreasonable search and
seizure to be escaped through the mere
procedural device of compelling a third-
party naked possessor to produce and
deliver them. Schwimmer vs. United
States, 232 F. 2d 855, 861 (8th Cir. 1956).
Aggrieved person doctrine where the search warrant
s primarily directed against said person
gives "standing."
The latest United States decision squarely in point
is United States vs. Birrell, 242 F. Supp. 191 (1965,
U.S.D.C. S.D.N.Y.). The defendant had stored with
an attorney certain files and papers, which attorney,
by the name of Dunn, was not, at the time of the
seizing of the records, Birrell's attorney. * Dunn, in
turn, had stored most of the records at his home in
the country and on a farm which, according to
Dunn's affidavit, was under his (Dunn's) "control and
management." The papers turned out to be private,
personal and business papers together with corporate
books and records of certain unnamed corporations
in which Birrell did not even claim ownership. (All
of these type records were seized in the case at bar).
Nevertheless, the search in Birrell was held invalid
by the court which held that even though Birrell did
not own the premises where the records were stored,
he had "standing" to move for the return of all the
papers and properties seized. The court, relying
on Jones vs. U.S., supra; U.S. vs. Antonelli
Fireworks Co., 53 F. Supp. 870, Aff'd 155 F. 2d
631: Henzel vs. U.S., supra; and Schwimmer vs.
U.S., supra, pointed out that
It is overwhelmingly established that the
searches here in question were directed
solely and exclusively against Birrell. The
only person suggested in the papers as
having violated the law was Birrell. The
first search warrant described the records
as having been used "in committing a
violation of Title 18, United States Code,
Section 1341, by the use of the mails by
one Lowell M. Birrell, . . ." The second
search warrant was captioned: "United
States of America vs. Lowell M. Birrell. (p.
198)
Possession (actual or constructive), no less
than ownership, gives standing to move to
suppress. Such was the rule even before
Jones. (p. 199)
If, as thus indicated Birrell had at least
constructive possession of the records
stored with Dunn, it matters not whether
he had any interest in the premises
searched. See also Jeffers v. United States,
88 U.S. Appl. D.C. 58, 187 F. 2d 498
(1950), affirmed 432 U.S. 48, 72 S. Ct. 93,
96 L. Ed. 459 (1951).
The ruling in the Birrell case was reaffirmed on
motion for reargument; the United States did not
appeal from this decision. The factual situation
in Birrell is strikingly similar to the case of the
present petitioners; as in Birrell, many personal and
corporate papers were seized from premises not
petitioners' family residences; as in Birrell, the
searches were "PRIMARILY DIRECTED SOLETY
AND EXCLUSIVELY" against the petitioners. Still
both types of documents were suppressed
in Birrell because of the illegal search. In the case at
bar, the petitioners connection with the premises
raided is much closer than in Birrell.
Thus, the petitioners have full standing to move for
the quashing of all the warrants regardless whether
these were directed against residences in the narrow
sense of the word, as long as the documents were
personal papers of the petitioners or (to the extent
that they were corporate papers) were held by them
in a personal capacity or under their personal control.
Prescinding a from the foregoing, this Court, at all
events, should order the return to the petitioners
all personal and private papers and effects seized, no
matter where these were seized, whether from their
residences or corporate offices or any other place or
places. The uncontradicted sworn statements of the
petitioners in their, various pleadings submitted to
this Court indisputably show that amongst the things
seized from the corporate offices and other places
were personal and private papers and effects
belonging to the petitioners.
If there should be any categorization of the
documents, papers and things which where the
objects of the unlawful searches and seizures, I
submit that the grouping should be:
(a) personal or private papers of the petitioners were
they were unlawfully seized, be it their family
residences offices, warehouses and/or premises
owned and/or possessed (actually or constructively)
by them as shown in all the search and in the sworn
applications filed in securing the void search
warrants and (b) purely corporate papers belonging
to corporations. Under such categorization or
grouping, the determination of which unlawfully
seized papers, documents and things
are personal/private of the petitioners or purely
corporate papers will have to be left to the lower
courts which issued the void search warrants in
ultimately effecting the suppression and/or return of
the said documents.

And as unequivocally indicated by the authorities

above cited, the petitioners likewise have clear legal
standing to move for the suppression of purely
corporate papers as "President and/or General
Manager" of the corporations involved as
specifically mentioned in the void search warrants.

Finally, I must articulate my persuasion that

although the cases cited in my disquisition were
criminal prosecutions, the great clauses of the
constitutional proscription on illegal searches and
seizures do not withhold the mantle of their
protection from cases not criminal in origin or
nature.
 Republic of the Philippines 1. The Sequestration, Takeover, and Other 3.
SUPREME COURT Orders Complained of Philippine
Manila Jai-Alai
a. The Basic Sequestration Corporation
EN BANC Order
4. Fidelity
G.R. No. 75885 May 27, 1987 The sequestration order which, in the view of Manageme
the petitioner corporation, initiated all its misery nt Co., Inc.
BATAAN SHIPYARD & ENGINEERING CO., was issued on April 14, 1986 by Commissioner
INC. (BASECO), petitioner, Mary Concepcion Bautista. It was addressed to 5. Romson
vs. three of the agents of the Commission, Realty, Inc.
PRESIDENTIAL COMMISSION ON GOOD hereafter simply referred to as PCGG. It reads
GOVERNMENT, CHAIRMAN JOVITO as follows: 6. Trident
SALONGA, COMMISSIONER MARY Manageme
CONCEPCION BAUTISTA, COMMISSIONER RE: SEQUESTRATION nt Co.
RAMON DIAZ, COMMISSIONER RAUL R. ORDER
DAZA, COMMISSIONER QUINTIN S. 7. New
DOROMAL, CAPT. JORGE B. SIACUNCO, et By virtue of the powers Trident
al., respondents. vested in the Presidential Manageme
Commission on Good nt
Apostol, Bernas, Gumaru, Ona and Associates Government, by authority of
for petitioner. the President of the 8. Bay
Philippines, you are hereby Transport
Vicente G. Sison for intervenor A.T. Abesamis. directed to sequester the
following companies.
9. And all
affiliate
1. Bataan companies
Shipyard of Alfredo
NARVASA, J.: and "Bejo"
Engineering Romualdez
Challenged in this special civil action of Co., Inc.
certiorari and prohibition by a private (Engineerin
corporation known as the Bataan Shipyard and g Island You are hereby ordered:
Engineering Co., Inc. are: (1) Executive Orders Shipyard
Numbered 1 and 2, promulgated by President and 1. To implement this
Corazon C. Aquino on February 28, 1986 and Mariveles sequestration order with a
March 12, 1986, respectively, and (2) the Shipyard) minimum disruption of these
sequestration, takeover, and other orders companies' business
issued, and acts done, in accordance with said 2. Baseco activities.
executive orders by the Presidential Quarry
Commission on Good Government and/or its 2. To ensure the continuity of
Commissioners and agents, affecting said these companies as going
corporation. concerns, the care and
 maintenance of these assets 2.3. Sheet, Profit & Loss and
until such time that the Office Minutes of others from 1973 to
of the President through the the Annual December 31, 1985.
Commission on Good Stockholder
Government should decide s Meeting 5. Monthly Financial
otherwise. from 1973 Statements for the current
to 1986 year up to March 31, 1986.
3. To report to the
Commission on Good 2.4. 6. Consolidated Cash
Government periodically. Minutes of Position Reports from
the Regular January to April 15, 1986.
Further, you are authorized to and Special
request for Military/Security Meetings of
the Board 7. Inventory listings of assets
Support from the up dated up to March 31,
Military/Police authorities, and of Directors
from 1973 1986.
such other acts essential to
the achievement of this to 1986
sequestration order. 1 8. Updated schedule of
2.5. Accounts Receivable and
Minutes of Accounts Payable.
b. Order for Production of
Documents the
Executive 9. Complete list of depository
Committee banks for all funds with the
On the strength of the above sequestration Meetings authorized signatories for
order, Mr. Jose M. Balde, acting for the PCGG, from 1973 withdrawals thereof.
addressed a letter dated April 18, 1986 to the to 1986
President and other officers of petitioner firm,
reiterating an earlier request for the production 10. Schedule of company
of certain documents, to wit: 2.6. investments and
Existing placements. 2
contracts
1. Stock Transfer Book with The letter closed with the warning that if the
suppliers/co documents were not submitted within five days,
2. Legal documents, such as: ntractors/ot the officers would be cited for "contempt in
hers. pursuance with Presidential Executive Order
2.1. Articles Nos. 1 and 2."
of 3. Yearly list of stockholders
Incorporatio with their corresponding c. Orders Re Engineer Island
n share/stockholdings from
1973 to 1986 duly certified by
the Corporate Secretary. (1) Termina
2.2. By- tion of
Laws Contract for
4. Audited Financial Security
Statements such as Balance Services
A third order assailed by petitioner corporation,
hereafter referred to simply as BASECO, is that
issued on April 21, 1986 by a Capt. Flordelino
B. Zabala, a member of the task force assigned
to carry out the basic sequestration order. He
sent a letter to BASECO's Vice-President for
Finance, 3 terminating the contract for security
services within the Engineer Island compound
between BASECO and "Anchor and
FAIRWAYS" and "other civilian security
agencies," CAPCOM military personnel having
already been assigned to the area,
(2) Change
of Mode of
Payment of
Entry
Charges
On July 15, 1986, the same Capt. Zabala
issued a Memorandum addressed to "Truck
Owners and Contractors," particularly a "Mr.
Buddy Ondivilla National Marine Corporation,"
advising of the amendment in part of their
contracts with BASECO in the sense that the
stipulated charges for use of the BASECO road
network were made payable "upon entry and
not anymore subject to monthly billing as was
originally agreed upon." 4
d. Aborted Contract for
Improvement of Wharf at
Engineer Island
On July 9, 1986, a PCGG fiscal agent, S.
Berenguer, entered into a contract in behalf of
BASECO with Deltamarine Integrated Port
Services, Inc., in virtue of which the latter
undertook to introduce improvements costing
approximately P210,000.00 on the BASECO
wharf at Engineer Island, allegedly then in poor
condition, avowedly to "optimize its utilization
and in return maximize the revenue which
would flow into the government coffers," in
consideration of Deltamarine's being granted
"priority in using the improved portion of the
wharf ahead of anybody" and exemption "from
the payment of any charges for the use of wharf
including the area where it may install its
bagging equipments" "until the improvement
remains in a condition suitable for port
operations." 5 It seems however that this
contract was never consummated. Capt. Jorge
B. Siacunco, "Head- (PCGG) BASECO
Management Team," advised Deltamarine by
letter dated July 30, 1986 that "the new
management is not in a position to honor the
said contract" and thus "whatever
improvements * * (may be introduced) shall be
deemed unauthorized * * and shall be at * *
(Deltamarine's) own risk." 6
e. Order for Operation of
Sesiman Rock Quarry,
Mariveles, Bataan
By Order dated June 20, 1986, Commissioner
Mary Bautista first directed a PCGG agent,
Mayor Melba O. Buenaventura, "to plan and
implement progress towards maximizing the
continuous operation of the BASECO Sesiman
Rock Quarry * * by conventional methods;" but
afterwards, Commissioner Bautista, in
representation of the PCGG, authorized another
party, A.T. Abesamis, to operate the quarry,
located at Mariveles, Bataan, an agreement to
this effect having been executed by them on
September 17, 1986. 7
f. Order to Dispose of Scrap,
etc.
By another Order of Commissioner Bautista,
this time dated June 26, 1986, Mayor
Buenaventura was also "authorized to clean
and beautify the Company's compound," and in
this connection, to dispose of or sell "metal
scraps" and other materials, equipment and
machineries no longer usable, subject to
specified guidelines and safeguards including
audit and verification. 8
g. The TAKEOVER Order
By letter dated July 14, 1986, Commissioner
Ramon A. Diaz decreed the provisional
takeover by the PCGG of BASECO, "the
Philippine Dockyard Corporation and all their
affiliated companies." 9 Diaz invoked the
provisions of Section 3 (c) of Executive Order
No. 1, empowering the Commission —
* * To provisionally takeover
in the public interest or to
prevent its disposal or
dissipation, business
enterprises and properties
taken over by the government
of the Marcos Administration
or by entities or persons close
to former President Marcos,
until the transactions leading
to such acquisition by the
latter can be disposed of by
the appropriate authorities.
A management team was designated to
implement the order, headed by Capt.
Siacunco, and was given the following powers:
1. Conducts all aspects of
operation of the subject
companies;
2. Installs key officers, hires
and terminates personnel as
necessary;
 3. Enters into contracts
related to management and
operation of the companies;
4. Ensures that the assets of
the companies are not
dissipated and used
effectively and efficiently;
revenues are duly accounted
for; and disburses funds only
as may be necessary;
5. Does actions including
among others, seeking of
military support as may be
necessary, that will ensure
compliance to this order;
6. Holds itself fully
accountable to the
Presidential Commission on
Good Government on all
aspects related to this take-
over order.
h. Terminati
on of
Services of
BASECO
Officers
Thereafter, Capt. Siacunco, sent letters to
Hilario M. Ruiz, Manuel S. Mendoza, Moises M.
Valdez, Gilberto Pasimanero, and Benito R.
Cuesta I, advising of the termination of their
services by the PCGG. 10
2. Petitioner's Plea and
Postulates
It is the foregoing specific orders and acts of the
PCGG and its members and agents which, to
repeat, petitioner BASECO would have this
Court nullify. More particularly, BASECO prays
that this Court-
1) declare unconstitutional and void Executive
Orders Numbered 1 and 2;
2) annul the sequestration order dated April- 14,
1986, and all other orders subsequently issued
and acts done on the basis thereof, inclusive of
the takeover order of July 14, 1986 and the
termination of the services of the BASECO
executives. 11
a. Re Executive Orders No. 1
and 2, and the Sequestration
and Takeover Orders
While BASECO concedes that "sequestration
without resorting to judicial action, might be
made within the context of Executive Orders
Nos. 1 and 2 before March 25, 1986 when the
Freedom Constitution was promulgated, under
the principle that the law promulgated by the
ruler under a revolutionary regime is the law of
the land, it ceased to be acceptable when the
same ruler opted to promulgate the Freedom
Constitution on March 25, 1986 wherein under
Section I of the same, Article IV (Bill of Rights)
of the 1973 Constitution was adopted providing,
among others, that "No person shall be
deprived of life, liberty and property without due
process of law." (Const., Art. I V, Sec. 1)." 12
It declares that its objection to the
constitutionality of the Executive Orders "as well
as the Sequestration Order * * and Takeover
Order * * issued purportedly under the authority
of said Executive Orders, rests on four
fundamental considerations: First, no notice and
hearing was accorded * * (it) before its
properties and business were taken
over; Second, the PCGG is not a court, but a
purely investigative agency and therefore not
competent to act as prosecutor and judge in the
same cause; Third, there is nothing in the
issuances which envisions any proceeding,
process or remedy by which petitioner may
expeditiously challenge the validity of the
takeover after the same has been effected;
and Fourthly, being directed against specified
persons, and in disregard of the constitutional
presumption of innocence and general rules
and procedures, they constitute a Bill of
Attainder." 13
b. Re Order to Produce
Documents
It argues that the order to produce corporate
records from 1973 to 1986, which it has
apparently already complied with, was issued
without court authority and infringed its
constitutional right against self-incrimination,
and unreasonable search and seizure. 14
c. Re PCGG's Exercise of
Right of Ownership and
Management
BASECO further contends that the PCGG had
unduly interfered with its right of dominion and
management of its business affairs by —
1) terminating its contract for security services
with Fairways & Anchor, without the consent
and against the will of the contracting parties;
and amending the mode of payment of entry
fees stipulated in its Lease Contract with
National Stevedoring & Lighterage Corporation,
these acts being in violation of the non-
impairment clause of the constitution; 15
2) allowing PCGG Agent Silverio Berenguer to
enter into an "anomalous contract" with
Deltamarine Integrated Port Services, Inc.,
giving the latter free use of BASECO
premises; 16
3) authorizing PCGG Agent, Mayor Melba
Buenaventura, to manage and operate its rock
quarry at Sesiman, Mariveles; 17
4) authorizing the same mayor to sell or dispose
of its metal scrap, equipment, machinery and
other materials; 18
5) authorizing the takeover of BASECO,
Philippine Dockyard Corporation, and all their
affiliated companies;
6) terminating the services of BASECO
executives: President Hilario M. Ruiz; EVP
Manuel S. Mendoza; GM Moises M. Valdez;
Finance Mgr. Gilberto Pasimanero; Legal Dept.
Mgr. Benito R. Cuesta I; 19
7) planning to elect its own Board of
Directors; 20
8) allowing willingly or unwillingly its personnel
to take, steal, carry away from petitioner's
premises at Mariveles * * rolls of cable wires,
worth P600,000.00 on May 11, 1986; 21
9) allowing "indiscriminate diggings" at Engineer
Island to retrieve gold bars supposed to have
been buried therein. 22
3. Doubts, Misconceptions regarding
Sequestration, Freeze and Takeover Orders
Many misconceptions and much doubt about
the matter of sequestration, takeover and freeze
orders have been engendered by
misapprehension, or incomplete comprehension
if not indeed downright ignorance of the law
governing these remedies. It is needful that
these misconceptions and doubts be dispelled
so that uninformed and useless debates about
them may be avoided, and arguments tainted b
sophistry or intellectual dishonesty be quickly
exposed and discarded. Towards this end, this
opinion will essay an exposition of the law on
the matter. In the process many of the
objections raised by BASECO will be dealt with.
4. The Governing Law
a. Proclamation No. 3
The impugned executive orders are avowedly
meant to carry out the explicit command of the
Provisional Constitution, ordained by
Proclamation No. 3, 23 that the President-in the
exercise of legislative power which she was
authorized to continue to wield "(until a
legislature is elected and convened under a
new Constitution" — "shall give priority to
measures to achieve the mandate of the
people," among others to (r)ecover ill-gotten
properties amassed by the leaders and
supporters of the previous regime and protect
the interest of the people through orders of
sequestration or freezing of assets or
accounts." 24
b. Executive Order No. 1
Executive Order No. 1 stresses the "urgent
need to recover all ill-gotten wealth," and
postulates that "vast resources of the
government have been amassed by former
President Ferdinand E. Marcos, his immediate
family, relatives, and close associates both here
and abroad." 25 Upon these premises, the
Presidential Commission on Good Government
was created, 26 "charged with the task of
assisting the President in regard to (certain
specified) matters," among which was precisely-
* * The recovery of all in-
gotten wealth accumulated by
former President Ferdinand
E. Marcos, his immediate
family, relatives, subordinates
and close associates,
whether located in the
Philippines or abroad,
including the takeover or
sequestration of all business
enterprises and entities
owned or controlled by them,
during his administration,
directly or through nominees,
by taking undue advantage of
their public office and/or using
their powers, authority,
influence, connections or
relationship. 27
In relation to the takeover or sequestration that
it was authorized to undertake in the fulfillment
of its mission, the PCGG was granted "power
and authority" to do the following particular acts,
to wit:
1. To sequester or place or
cause to be placed under its
control or possession any
building or office wherein any
ill-gotten wealth or properties
may be found, and any
records pertaining thereto, in
order to prevent their
destruction, concealment or
disappearance which would
frustrate or hamper the
investigation or otherwise
prevent the Commission from
accomplishing its task.
2. To provisionally take
over in the public interest or
to prevent the disposal or
 dissipation, business
enterprises and properties
taken over by the government
of the Marcos Administration
or by entities or persons close
to former President Marcos,
until the transactions leading
to such acquisition by the
latter can be disposed of by
the appropriate authorities.
3. To enjoin or restrain any
actual or threatened
commission of acts by any
person or entity that may
render moot and academic, or
frustrate or otherwise make
ineffectual the efforts of the
Commission to carry out its
task under this order. 28
So that it might ascertain the facts germane to
its objectives, it was granted power to conduct
investigations; require submission of evidence
by subpoenae ad testificandum and duces
tecum; administer oaths; punish for
contempt. 29It was given power also to
promulgate such rules and regulations as may
be necessary to carry out the purposes of * * (its
creation). 30
c. Executiv
e Order No.
2 condominiums, mansions,
Executive Order No. 2 gives additional and
more specific data and directions respecting
"the recovery of ill-gotten properties amassed
by the leaders and supporters of the previous
regime." It declares that:
Upon these premises, the President-
1) * * the Government of the
Philippines is in possession of
evidence showing that there
are assets and properties
purportedly pertaining to
former Ferdinand E. Marcos,
and/or his wife Mrs. Imelda
Romualdez Marcos, their
close relatives, subordinates,
business associates,
dummies, agents or
nominees which had been or
were acquired by them
directly or indirectly, through
or as a result of the improper
or illegal use of funds or
properties owned by the
government of the Philippines
or any of its branches,
instrumentalities, enterprises,
banks or financial institutions,
or by taking undue advantage
of their office, authority,
influence, connections or
relationship, resulting in their
unjust enrichment and
causing grave damage and
prejudice to the Filipino
people and the Republic of
the Philippines:" and
2) * * said assets and
properties are in the form of
bank accounts, deposits, trust
accounts, shares of stocks,
buildings, shopping centers,
residences, estates, and
other kinds of real and
personal properties in the
Philippines and in various
countries of the world." 31
1) froze "all assets and
properties in the Philippines in
which former President
Marcos and/or his wife, Mrs.
Imelda Romualdez Marcos,
their close relatives,
subordinates, business
associates, dummies, agents,
or nominees have any
interest or participation;
2) prohibited former President
Ferdinand Marcos and/or his
wife * *, their close relatives,
subordinates, business
associates, duties, agents, or
nominees from transferring,
conveying, encumbering,
concealing or dissipating said
assets or properties in the
Philippines and abroad,
pending the outcome of
appropriate proceedings in
the Philippines to determine
whether any such assets or
properties were acquired by
them through or as a result of
improper or illegal use of or
the conversion of funds
belonging to the Government
of the Philippines or any of its
branches, instrumentalities,
enterprises, banks or financial
institutions, or by taking
undue advantage of their
official position, authority,
relationship, connection or
influence to unjustly enrich
themselves at the expense
and to the grave damage and
prejudice of the Filipino
people and the Republic of
the Philippines;
 3) prohibited "any person
from transferring, conveying,
encumbering or otherwise
depleting or concealing such
assets and properties or from
assisting or taking part in their
transfer, encumbrance,
concealment or dissipation
under pain of such penalties
as are prescribed by law;"
and
4) required "all persons in the
Philippines holding such
assets or properties, whether
located in the Philippines or
abroad, in their names as
nominees, agents or trustees,
to make full disclosure of the
same to the Commission on
Good Government within
thirty (30) days from
publication of * (the)
Executive Order, * *. 32
d. Executiv
e Order No.
14
A third executive order is relevant: Executive
Order No. 14, 33 by which the PCGG is
empowered, "with the assistance of the Office of
the Solicitor General and other government
agencies, * * to file and prosecute all cases
investigated by it * * as may be warranted by its
findings." 34 All such cases, whether civil or
criminal, are to be filed "with
the Sandiganbayan which shall have exclusive
and original jurisdiction thereof." 35 Executive
Order No. 14 also pertinently provides that civil
suits for restitution, reparation of damages, or
indemnification for consequential damages,
forfeiture proceedings provided for under
Republic Act No. 1379, or any other civil actions
under the Civil Code or other existing laws, in
connection with * * (said Executive Orders
Numbered 1 and 2) may be filed separately
from and proceed independently of any criminal
proceedings and may be proved by a
preponderance of evidence;" and that,
moreover, the "technical rules of procedure and
evidence shall not be strictly applied to* *
(said)civil cases." 36
5. Contemplated Situations
The situations envisaged and sought to be
governed are self-evident, these being:
1) that "(i)ll-gotten properties
(were) amassed by the
leaders and supporters of the
previous regime"; 37
a) more particularly, that ill-
gotten wealth (was)
accumulated by former
President Ferdinand E.
Marcos, his immediate family,
relatives, subordinates and
close associates, * * located
in the Philippines or abroad, *
* (and) business enterprises
and entities (came to be)
owned or controlled by them,
during * * (the Marcos)
administration, directly or
through nominees, by taking
undue advantage of their
public office and/or using their
powers, authority, influence,
Connections or
relationship; 38
b) otherwise stated, that
"there are assets and
properties purportedly
pertaining to former President
Ferdinand E. Marcos, and/or
his wife Mrs. Imelda
Romualdez Marcos, their
close relatives, subordinates,
business associates,
dummies, agents or
nominees which had been or
were acquired by them
directly or indirectly, through
or as a result of the improper
or illegal use of funds or
properties owned by the
Government of the
Philippines or any of its
branches, instrumentalities,
enterprises, banks or financial
institutions, or by taking
undue advantage of their
office, authority, influence,
connections or relationship,
resulting in their unjust
enrichment and causing
grave damage and prejudice
to the Filipino people and the
Republic of the
Philippines"; 39
c) that "said assets and
properties are in the form of
bank accounts. deposits,
trust. accounts, shares of
stocks, buildings, shopping
centers, condominiums,
mansions, residences,
estates, and other kinds of
real and personal properties
in the Philippines and in
various countries of the
world;" 40 and
2) that certain "business
enterprises and properties
(were) taken over by the
 government of the Marcos
Administration or by entities
or persons close to former
President Marcos. 41
6. Government's Right and Duty to Recover All
Ill-gotten Wealth
There can be no debate about the validity and
eminent propriety of the Government's plan "to
recover all ill-gotten wealth."
Neither can there be any debate about the
proposition that assuming the above described
factual premises of the Executive Orders and
Proclamation No. 3 to be true, to be
demonstrable by competent evidence, the
recovery from Marcos, his family and his
dominions of the assets and properties
involved, is not only a right but a duty on the
part of Government.
But however plain and valid that right and duty
may be, still a balance must be sought with the
equally compelling necessity that a proper
respect be accorded and adequate protection
assured, the fundamental rights of private
property and free enterprise which are deemed
pillars of a free society such as ours, and to
which all members of that society may without
exception lay claim.
* * Democracy, as a way of
life enshrined in the
Constitution, embraces as its
necessary components
freedom of conscience,
freedom of expression, and
freedom in the pursuit of
happiness. Along with these
freedoms are included
economic freedom and
freedom of enterprise within
reasonable bounds and under
proper control. * * Evincing
much concern for the
protection of property, the
Constitution distinctly
recognizes the preferred
position which real estate has
occupied in law for
ages. Property is bound up
with every aspect of social life
in a democracy as democracy
is conceived in the
Constitution.The Constitution
realizes the indispensable
role which property, owned in
reasonable quantities and
used legitimately, plays in the
stimulation to economic effort
and the formation and growth
of a solid social middle class
that is said to be the bulwark
of democracy and the
backbone of every
progressive and happy
country. 42
a. Need of Evidentiary
Substantiation in Proper Suit
Consequently, the factual premises of the
Executive Orders cannot simply be assumed.
They will have to be duly established by
adequate proof in each case, in a proper judicial
proceeding, so that the recovery of the ill-gotten
wealth may be validly and properly adjudged
and consummated; although there are some
who maintain that the fact-that an immense
fortune, and "vast resources of the government
have been amassed by former President
Ferdinand E. Marcos, his immediate family,
relatives, and close associates both here and
abroad," and they have resorted to all sorts of
clever schemes and manipulations to disguise
and hide their illicit acquisitions-is within the
realm of judicial notice, being of so extensive
notoriety as to dispense with proof thereof, Be
this as it may, the requirement of evidentiary
substantiation has been expressly
acknowledged, and the procedure to be
followed explicitly laid down, in Executive Order
No. 14.
b. Need of Provisional
Measures to Collect and
Conserve Assets Pending
Suits
Nor may it be gainsaid that pending the
institution of the suits for the recovery of such
"ill-gotten wealth" as the evidence at hand may
reveal, there is an obvious and imperative need
for preliminary, provisional measures to prevent
the concealment, disappearance, destruction,
dissipation, or loss of the assets and properties
subject of the suits, or to restrain or foil acts that
may render moot and academic, or effectively
hamper, delay, or negate efforts to recover the
same.
7. Provisional Remedies Prescribed by Law
To answer this need, the law has prescribed
three (3) provisional remedies. These are: (1)
sequestration; (2) freeze orders; and (3)
provisional takeover.
Sequestration and freezing are remedies
applicable generally to unearthed instances of
"ill-gotten wealth." The remedy of "provisional
takeover" is peculiar to cases where "business
enterprises and properties (were) taken over by
the government of the Marcos Administration or
by entities or persons close to former President
Marcos." 43
a. Sequestration
By the clear terms of the law, the power of the
PCGG to sequester property claimed to be "ill-
gotten" means to place or cause to be placed
under its possession or control said property, or
any building or office wherein any such property
and any records pertaining thereto may be
found, including "business enterprises and
entities,"-for the purpose of preventing the
destruction, concealment or dissipation of, and
otherwise conserving and preserving, the same-
until it can be determined, through appropriate
judicial proceedings, whether the property was
in truth will- gotten," i.e., acquired through or as
a result of improper or illegal use of or the
conversion of funds belonging to the
Government or any of its branches,
instrumentalities, enterprises, banks or financial
institutions, or by taking undue advantage of
official position, authority relationship,
connection or influence, resulting in unjust
enrichment of the ostensible owner and grave
damage and prejudice to the State. 44 And this,
too, is the sense in which the term is commonly
understood in other jurisdictions. 45
b. "Freeze Order"
A "freeze order" prohibits the person having
possession or control of property alleged to
constitute "ill-gotten wealth" "from transferring,
conveying, encumbering or otherwise depleting
or concealing such property, or from assisting or
taking part in its transfer, encumbrance,
concealment, or dissipation." 46 In other words,
it commands the possessor to hold the property
and conserve it subject to the orders and
disposition of the authority decreeing such
freezing. In this sense, it is akin to a
garnishment by which the possessor or
ostensible owner of property is enjoined not to
deliver, transfer, or otherwise dispose of any
effects or credits in his possession or control,
and thus becomes in a sense an involuntary
depositary thereof. 47
c. Provisional Takeover
In providing for the remedy of "provisional
takeover," the law acknowledges the apparent
distinction between "ill gotten" "business
enterprises and entities" (going concerns,
businesses in actual operation), generally, as to
which the remedy of sequestration applies, it
being necessarily inferred that the remedy
entails no interference, or the least possible
interference with the actual management and
operations thereof; and "business enterprises
which were taken over by the government
government of the Marcos Administration or by
entities or persons close to him," in particular,
as to which a "provisional takeover" is
authorized, "in the public interest or to prevent
disposal or dissipation of the
enterprises." 48 Such a "provisional takeover"
imports something more than sequestration or
freezing, more than the placing of the business
under physical possession and control, albeit
without or with the least possible interference
with the management and carrying on of the
business itself. In a "provisional takeover," what
is taken into custody is not only the physical
assets of the business enterprise or entity, but
the business operation as well. It is in fine the
assumption of control not only over things, but
over operations or on- going activities. But, to
repeat, such a "provisional takeover" is allowed
only as regards "business enterprises * * taken
over by the government of the Marcos
Administration or by entities or persons close to
former President Marcos."
d. No Divestment of Title
Over Property Seized
It may perhaps be well at this point to stress
once again the provisional, contingent character
of the remedies just described. Indeed the law
plainly qualifies the remedy of take-over by the
adjective, "provisional." These remedies may be
resorted to only for a particular exigency: to
prevent in the public interest the disappearance
or dissipation of property or business, and
conserve it pending adjudgment in appropriate
proceedings of the primary issue of whether or
not the acquisition of title or other right thereto
by the apparent owner was attended by some
vitiating anomaly. None of the remedies is
meant to deprive the owner or possessor of his
title or any right to the property sequestered,
frozen or taken over and vest it in the
sequestering agency, the Government or other
person. This can be done only for the causes
and by the processes laid down by law.
That this is the sense in which the power to
sequester, freeze or provisionally take over is to
be understood and exercised, the language of
the executive orders in question leaves no
doubt. Executive Order No. 1 declares that the
sequestration of property the acquisition of
which is suspect shall last "until the transactions
leading to such acquisition * * can be disposed
of by the appropriate authorities." 49 Executive
Order No. 2 declares that the assets or
properties therein mentioned shall remain
frozen "pending the outcome of appropriate
proceedings in the Philippines to determine
whether any such assets or properties were
acquired" by illegal means. Executive Order No.
14 makes clear that judicial proceedings are
essential for the resolution of the basic issue of
whether or not particular assets are "ill-gotten,"
and resultant recovery thereof by the
Government is warranted.
e. State of Seizure Not To Be
Indefinitely Maintained; The
Constitutional Command
There is thus no cause for the apprehension
voiced by BASECO 50 that sequestration,
freezing or provisional takeover is designed to
be an end in itself, that it is the device through
which persons may be deprived of their property
branded as "ill-gotten," that it is intended to
bring about a permanent, rather than a passing,
transitional state of affairs. That this is not so is
quite explicitly declared by the governing rules.
Be this as it may, the 1987 Constitution should
allay any lingering fears about the duration of
these provisional remedies. Section 26 of its
Transitory Provisions, 51 lays down the relevant
rule in plain terms, apart from extending
ratification or confirmation (although not really
necessary) to the institution by presidential fiat
of the remedy of sequestration and freeze
orders:
SEC. 26. The authority to
issue sequestration or freeze
orders under Proclamation
No. 3 dated March 25, 1986
in relation to the recovery of
ill-gotten wealth shag remain
operative for not more
than eighteen months after
the ratification of this
Constitution. However, in the
national interest, as certified
by the President,
the Congress may
extend said period.
A sequestration or freeze
order shall be issued only
upon showing of a prima
facie case. The order and the
list of the sequestered or
frozen properties shall
forthwith be registered with
the proper court. For orders
issued before the ratification
of this Constitution, the
corresponding judicial action
or proceeding shall be filed
within six months from its
ratification. For those issued
after such ratification, the
judicial action or proceeding
shall be commenced
within six months from the
issuance thereof.
The sequestration or freeze
order is deemed automatically
lifted if no judicial action or
proceeding is commenced as
herein provided. 52
f. Kinship to Attachment
Receivership
As thus described, sequestration, freezing and
provisional takeover are akin to the provisional
remedy of preliminary attachment, or
receivership. 53 By attachment, a sheriff seizes
property of a defendant in a civil suit so that it
may stand as security for the satisfaction of any
judgment that may be obtained, and not
disposed of, or dissipated, or lost intentionally or
otherwise, pending the action. 54 By
receivership, property, real or personal, which is
subject of litigation, is placed in the possession
and control of a receiver appointed by the
Court, who shall conserve it pending final
determination of the title or right of possession
over it. 55 All these remedies — sequestration,
freezing, provisional, takeover, attachment and
receivership — are provisional, temporary,
designed for-particular exigencies, attended by
no character of permanency or finality, and
always subject to the control of the issuing court
or agency.
g. Remedies, Non-Judicial
Parenthetically, that writs of sequestration or
freeze or takeover orders are not issued by a
court is of no moment. The Solicitor General
draws attention to the writ of distraint and levy
which since 1936 the Commissioner of Internal
Revenue has been by law authorized to issue
against property of a delinquent
taxpayer. 56 BASECO itself declares that it has
not manifested "a rigid insistence on
sequestration as a purely judicial remedy * * (as
it feels) that the law should not be ossified to a
point that makes it insensitive to change." What
it insists on, what it pronounces to be its
"unyielding position, is that any change in
procedure, or the institution of a new one,
should conform to due process and the other
prescriptions of the Bill of Rights of the
Constitution." 57 It is, to be sure, a proposition
on which there can be no disagreement.
h. Orders May Issue Ex Parte
Like the remedy of preliminary attachment and
receivership, as well as delivery of personal
property in replevin suits, sequestration and
provisional takeover writs may issue ex
parte. 58 And as in preliminary attachment,
receivership, and delivery of personality, no
objection of any significance may be raised to
the ex parte issuance of an order of
sequestration, freezing or takeover, given its
fundamental character of temporariness or
conditionality; and taking account specially of
the constitutionally expressed "mandate of the
people to recover ill-gotten properties amassed
by the leaders and supporters of the previous
regime and protect the interest of the
people;" 59 as well as the obvious need to avoid
alerting suspected possessors of "ill-gotten
wealth" and thereby cause that disappearance
or loss of property precisely sought to be
prevented, and the fact, just as self-evident, that
"any transfer, disposition, concealment or
disappearance of said assets and properties
would frustrate, obstruct or hamper the efforts of
the Government" at the just recovery thereof. 60
8. Requisites for Validity
What is indispensable is that, again as in the
case of attachment and receivership, there exist
a prima facie factual foundation, at least, for the
sequestration, freeze or takeover order, and
adequate and fair opportunity to contest it and
endeavor to cause its negation or nullification. 61
Both are assured under the executive orders in
question and the rules and regulations
promulgated by the PCGG.
a. Prima Facie Evidence as
Basis for Orders
Executive Order No. 14 enjoins that there be
"due regard to the requirements of fairness and
due process." 62Executive Order No. 2 declares
that with respect to claims on allegedly "ill-
gotten" assets and properties, "it is the position
of the new democratic government that
President Marcos * * (and other parties
affected) be afforded fair opportunity to contest
these claims before appropriate Philippine
authorities." 63 Section 7 of the Commission's
Rules and Regulations provides that
sequestration or freeze (and takeover) orders
issue upon the authority of at least two
commissioners, based on the affirmation or
complaint of an interested party, or motu
proprio when the Commission has reasonable
grounds to believe that the issuance thereof is
warranted. 64 A similar requirement is now found
in Section 26, Art. XVIII of the 1987
Constitution, which requires that a
"sequestration or freeze order shall be issued
only upon showing of a prima facie case." 65
b. Opportunity to Contest
And Sections 5 and 6 of the same Rules and
Regulations lay down the procedure by which a
party may seek to set aside a writ of
sequestration or freeze order, viz:
SECTION 5. Who may
contend.-The person against
whom a writ of sequestration
or freeze or hold order is
directed may request the
lifting thereof in writing, either
personally or through counsel
within five (5) days from
receipt of the writ or order, or
in the case of a hold order,
from date of knowledge
thereof.
SECTION 6. Procedure for
review of writ or order.-After
due hearing or motu proprio
for good cause shown, the
Commission may lift the writ
or order unconditionally or
subject to such conditions as
it may deem necessary,
taking into consideration the
evidence and the
circumstance of the case. The
resolution of the commission
may be appealed by the party
concerned to the Office of the
President of the Philippines
within fifteen (15) days from
receipt thereof.
Parenthetically, even if the requirement for
a prima facie showing of "ill- gotten wealth"
were not expressly imposed by some rule or
regulation as a condition to warrant the
sequestration or freezing of property
contemplated in the executive orders in
question, it would nevertheless be exigible in
this jurisdiction in which the Rule of Law
prevails and official acts which are devoid of
rational basis in fact or law, or are whimsical
and capricious, are condemned and struck
down. 66
9. Constitutional Sanction of Remedies
If any doubt should still persist in the face of the
foregoing considerations as to the validity and
propriety of sequestration, freeze and takeover
orders, it should be dispelled by the fact that
these particular remedies and the authority of
the PCGG to issue them have received
constitutional approbation and sanction. As
already mentioned, the Provisional or
"Freedom" Constitution recognizes the power
and duty of the President to enact "measures to
achieve the mandate of the people to * * *
(recover ill- gotten properties amassed by the
leaders and supporters of the previous regime
and protect the interest of the people
through orders of sequestration or freezing of
assets or accounts." And as also already
adverted to, Section 26, Article XVIII of the 1987
Constitution 67 treats of, and ratifies the
"authority to issue sequestration or freeze
orders under Proclamation No. 3 dated March
25, 1986."
The institution of these provisional remedies is
also premised upon the State's inherent police
power, regarded, as t lie power of promoting the
public welfare by restraining and regulating the
use of liberty and property," 68 and as "the most
essential, insistent and illimitable of powers * *
in the promotion of general welfare and the
public interest," 69and said to be co-extensive
with self-protection and * * not inaptly termed
(also) the'law of overruling necessity." "70
10. PCGG not a "Judge"; General Functions
It should also by now be reasonably evident
from what has thus far been said that the PCGG
is not, and was never intended to act as, a
judge. Its general function is to conduct 12. Organization and Stock Distribution of
2. Severino G. de la 1,248 shares
investigations in order to collect BASECO
Cruz
evidence establishing instances of "ill-gotten
wealth;" issue sequestration, and such BASECO describes itself in its petition as "a 3. Emilio T. Yap 2,508 shares
orders as may be warranted by the evidence shiprepair and shipbuilding company * *
thus collected and as may be necessary to incorporated as a domestic private corporation * 4. Jose Fernandez 1,248 shares
preserve and conserve the assets of which it * (on Aug. 30, 1972) by a consortium of Filipino
takes custody and control and prevent their shipowners and shipping executives. Its main 5. Jose Francisco 128 shares
disappearance, loss or dissipation; and office is at Engineer Island, Port Area, Manila,
eventually file and prosecute in the proper court where its Engineer Island Shipyard is housed,
of competent jurisdiction all cases investigated 6. Manuel S. 96 shares
and its main shipyard is located at Mariveles Mendoza
by it as may be warranted by its findings. It does Bataan." 73 Its Articles of Incorporation disclose
not try and decide, or hear and determine, or that its authorized capital stock is
adjudicate with any character of finality or 7. Anthony P. Lee 1,248 shares
P60,000,000.00 divided into 60,000 shares, of
compulsion, cases involving the essential issue which 12,000 shares with a value of
of whether or not property should be forfeited 8. Hilario M. Ruiz 32 shares
P12,000,000.00 have been subscribed, and on
and transferred to the State because "ill-gotten" said subscription, the aggregate sum of
within the meaning of the Constitution and the 9. Constante L. 8 shares
P3,035,000.00 has been paid by the Fariñas
executive orders. This function is reserved to incorporators. 74The same articles Identify the
the designated court, in this case, the incorporators, numbering fifteen (15), as
Sandiganbayan. 71 There can therefore be no 10. Fidelity 65,882 shares
follows: (1) Jose A. Rojas, (2) Anthony P. Lee, Management, Inc.
serious regard accorded to the accusation, (3) Eduardo T. Marcelo, (4) Jose P. Fernandez,
leveled by BASECO, 72that the PCGG plays the (5) Generoso Tanseco, (6) Emilio T. Yap, (7)
perfidious role of prosecutor and judge at the 11. Trident 7,412 shares
Antonio M. Ezpeleta, (8) Zacarias Amante, (9) Management
same time. Severino de la Cruz, (10) Jose Francisco, (11)
Dioscoro Papa, (12) Octavio Posadas, (13) 12. United Phil. Lines 1,240 shares
11. Facts Preclude Grant of Relief to Petitioner Manuel S. Mendoza, (14) Magiliw Torres, and
(15) Rodolfo Torres. 13. Renato M. 8 shares
Upon these premises and reasoned Tanseco
conclusions, and upon the facts disclosed by By 1986, however, of these fifteen (15)
the record, hereafter to be discussed, the incorporators, six (6) had ceased to be 14. Fidel Ventura 8 shares
petition cannot succeed. The writs of certiorari stockholders, namely: (1) Generoso Tanseco,
and prohibition prayed for will not be issued. (2) Antonio Ezpeleta, (3) Zacarias Amante, (4) 15. Metro Bay 136,370
Octavio Posadas, (5) Magiliw Torres, and (6) Drydock shares
The facts show that the corporation known as Rodolfo Torres. As of this year, 1986, there
BASECO was owned or controlled by President were twenty (20) stockholders listed in 16. Manuel Jacela 1 share
Marcos "during his administration, through BASECO's Stock and Transfer Book. 75Their
nominees, by taking undue advantage of his names and the number of shares respectively 17. Jonathan G. Lu 1 share
public office and/or using his powers, authority, held by them are as follows:
or influence, " and that it was by and through 18. Jose J. 1 share
the same means, that BASECO had taken over Tanchanco
1. Jose A. Rojas 1,248 shares
the business and/or assets of the National
Shipyard and Engineering Co., Inc., and other 19. Dioscoro Papa 128 shares
government-owned or controlled entities.

20. Edward T.
Marcelo
TOTAL
13 Acquisition of NASSCO by BASECO
Barely six months after its incorporation,
BASECO acquired from National Shipyard &
Steel Corporation, or NASSCO, a government-
owned or controlled corporation, the latter's
shipyard at Mariveles, Bataan, known as the
Bataan National Shipyard (BNS), and — except
for NASSCO's Engineer Island Shops and
certain equipment of the BNS, consigned for
future negotiation — all its structures, buildings,
shops, quarters, houses, plants, equipment and
facilities, in stock or in transit. This it did in virtue
of a "Contract of Purchase and Sale with
Chattel Mortgage" executed on February 13,
1973. The price was P52,000,000.00. As partial
payment thereof, BASECO delivered to
NASSCO a cash bond of P11,400,000.00,
convertible into cash within twenty-four (24)
hours from completion of the inventory
undertaken pursuant to the contract. The
balance of P41,600,000.00, with interest at
seven percent (7%) per annum, compounded
semi-annually, was stipulated to be paid in
equal semi-annual installments over a term of
nine (9) years, payment to commence after a
grace period of two (2) years from date of
turnover of the shipyard to BASECO. 76
14. Subsequent Reduction of Price; Intervention
of Marcos
Unaccountably, the price of P52,000,000.00
was reduced by more than one-half, to
P24,311,550.00, about eight (8) months later. A
document to this effect was executed on
October 9, 1973, entitled "Memorandum
4 shares
Agreement," and was signed for NASSCO by
Arturo Pacificador, as Presiding Officer of the
Board of Directors, and David R. Ines, as
218,819
General Manager. 77 This agreement bore, at
shares.
the top right corner of the first page, the word
"APPROVED" in the handwriting of President
Marcos, followed by his usual full signature. The
document recited that a down payment of
P5,862,310.00 had been made by BASECO,
and the balance of P19,449,240.00 was
payable in equal semi-annual installments over
nine (9) years after a grace period of two (2)
years, with interest at 7% per annum.
15. Acquisition of 300 Hectares from Export
Processing Zone Authority
On October 1, 1974, BASECO acquired three
hundred (300) hectares of land in Mariveles
from the Export Processing Zone Authority for
the price of P10,047,940.00 of which, as set out
in the document of sale, P2,000.000.00 was
paid upon its execution, and the balance
stipulated to be payable in installments. 78
16. Acquisition of Other Assets of NASSCO;
Intervention of Marcos
Some nine months afterwards, or on July 15,
1975, to be precise, BASECO, again with the
intervention of President Marcos, acquired
ownership of the rest of the assets of NASSCO
which had not been included in the first two (2)
purchase documents. This was accomplished
by a deed entitled "Contract of Purchase and
Sale," 79 which, like the Memorandum of
Agreement dated October 9, 1973 supra also
bore at the upper right-hand corner of its first
page, the handwritten notation of President
Marcos reading, "APPROVED, July 29, 1973,"
and underneath it, his usual full signature.
Transferred to BASECO were NASSCO's
"ownership and all its titles, rights and interests
over all equipment and facilities including
structures, buildings, shops, quarters, houses,
plants and expendable or semi-expendable
assets, located at the Engineer Island, known
as the Engineer Island Shops, including all the
equipment of the Bataan National Shipyards
(BNS) which were excluded from the sale of
NBS to BASECO but retained by BASECO and
all other selected equipment and machineries of
NASSCO at J. Panganiban Smelting Plant." In
the same deed, NASSCO committed itself to
cooperate with BASECO for the acquisition from
the National Government or other appropriate
Government entity of Engineer Island.
Consideration for the sale was set at
P5,000,000.00; a down payment of
P1,000,000.00 appears to have been made,
and the balance was stipulated to be paid at 7%
interest per annum in equal semi annual
installments over a term of nine (9) years, to
commence after a grace period of two (2) years.
Mr. Arturo Pacificador again signed for
NASSCO, together with the general manager,
Mr. David R. Ines.
17. Loans Obtained
It further appears that on May 27, 1975
BASECO obtained a loan from the NDC, taken
from "the last available Japanese war damage
fund of $19,000,000.00," to pay for "Japanese
made heavy equipment (brand new)." 80 On
September 3, 1975, it got another loan also
from the NDC in the amount of
P30,000,000.00 (id.). And on January 28, 1976,
it got still another loan, this time from the GSIS,
in the sum of P12,400,000.00. 81 The claim has
been made that not a single centavo has been
paid on these loans. 82
18. Reports to President Marcos
In September, 1977, two (2) reports were
submitted to President Marcos regarding
BASECO. The first was contained in a letter
dated September 5, 1977 of Hilario M. Ruiz,
BASECO president. 83 The second was
embodied in a confidential memorandum dated
September 16, 1977 of Capt. A.T.
Romualdez. 84 They further disclose the fine
hand of Marcos in the affairs of BASECO, and
that of a Romualdez, a relative by affinity.
a. BASECO President's
Report
In his letter of September 5, 1977, BASECO
President Ruiz reported to Marcos that there
had been "no orders or demands for ship
construction" for some time and expressed the
fear that if that state of affairs persisted,
BASECO would not be able to pay its debts to
the Government, which at the time stood at the
not inconsiderable amount of
P165,854,000.00. 85 He suggested that, to
"save the situation," there be a "spin-off (of
their) shipbuilding activities which shall be
handled exclusively by an entirely new
corporation to be created;" and towards this
end, he informed Marcos that BASECO was —
* * inviting
NDC and LUSTEVECO to
participate by converting the
NDC shipbuilding loan to
BASECO amounting to
P341.165M and assuming
and converting a portion of
BASECO's shipbuilding loans
from REPACOM amounting
to P52.2M or a total of
P83.365M as NDC's equity
contribution in the new
corporation. LUSTEVECO will
participate by absorbing and
converting a portion of the
REPACOM loan of Bay instructions to pass a board
Shipyard and Drydock, Inc., resolution to legalize the
amounting to P32.538M.86 transfers under SEC
regulations;
b. Romualdez' Report
2. By getting their
replacements, the families
Capt. A.T. Romualdez' report to the President
was submitted eleven (11) days later. It opened cannot question us later
on; and
with the following caption:
MEMORANDUM: 3. We will owe no further
favors from them. 87
FOR : The President
He also transmitted to Marcos, together with the
report, the following documents: 88
SUBJECT: An Evaluation and
Re-assessment of a
Performance of a Mission 1. Stock certificates indorsed
and assigned in blank with
assignments and waivers; 89
FROM: Capt. A.T.
Romualdez.
2. The articles of
incorporation, the amended
Like Ruiz, Romualdez wrote that BASECO articles, and the by-laws of
faced great difficulties in meeting its loan BASECO;
obligations due chiefly to the fact that "orders to
build ships as expected * * did not materialize."
3. Deed of Sales, wherein
NASSCO sold to BASECO
He advised that five stockholders had "waived four (4) parcels of land in
and/or assigned their holdings inblank," these "Engineer Island", Port Area,
being: (1) Jose A. Rojas, (2) Severino de la Manila;
Cruz, (3) Rodolfo Torres, (4) Magiliw Torres,
and (5) Anthony P. Lee. Pointing out that "Mr.
Magiliw Torres * * is already dead and Mr. Jose 4. Transfer Certificate of Title
No. 124822 in the name of
A. Rojas had a major heart attack," he made the
following quite revealing, and it may be added, BASECO, covering "Engineer
Island";
quite cynical and indurate recommendation, to
wit:
5. Contract dated October 9,
* * (that) their replacements 1973, between NASSCO and
(be effected) so we can BASECO re-structure and
register their names in the equipment at Mariveles,
stock book prior to the Bataan;
implementation of your
 6. Contract dated July 16,
1975, between NASSCO and
BASECO re-structure and
equipment at Engineer Island,
Port Area Manila;
7. Contract dated October 1,
1974, between EPZA and
BASECO re 300 hectares of
land at Mariveles, Bataan;
8. List of BASECO's fixed
assets;
9. Loan Agreement dated
September 3, 1975,
BASECO's loan from NDC of
P30,000,000.00;
10. BASECO-REPACOM
Agreement dated May 27,
1975;
11. GSIS loan to BASECO
dated January 28, 1976 of
P12,400,000.00 for the
housing facilities for
BASECO's rank-and-file
employees. 90
Capt. Romualdez also recommended that
BASECO's loans be restructured "until such
period when BASECO will have enough orders
for ships in order for the company to meet loan
obligations," and that —
An LOI may be issued to
government agencies using
floating equipment, that a
linkage scheme be applied to
a certain percent of
BASECO's net profit as part
of BASECO's amortization
payments to make it
justifiable for you, Sir. 91
It is noteworthy that Capt. A.T. Romualdez does
not appear to be a stockholder or officer of
BASECO, yet he has presented a report on
BASECO to President Marcos, and his report
demonstrates intimate familiarity with the firm's
affairs and problems.
19. Marcos' Response to
Reports
President Marcos lost no time in acting on his
subordinates' recommendations, particularly as
regards the "spin-off" and the "linkage scheme"
relative to "BASECO's amortization payments."
a. Instructions re "Spin-Off"
Under date of September 28, 1977, he
addressed a Memorandum to Secretary
Geronimo Velasco of the Philippine National Oil
Company and Chairman Constante Fariñas of
the National Development Company, directing
them "to participate in the formation of a new
corporation resulting from the spin-off of the
shipbuilding component of BASECO along the
following guidelines:
a. Equity participation of
government shall be through
LUSTEVECO and NDC in the
amount of P115,903,000
consisting of the
following obligations of
BASECO which are hereby
authorized to be converted to
equity of the said new
corporation, to wit:
1. NDC
P83,865,00
0
(P31.165M
loan &
P52.2M
Reparation)
2.
LUSTEVEC
O
P32,538,00
0
(Reparation
)
b. Equity participation of
government shall be in the
form of non- voting shares.
For immediate compliance. 92
Mr. Marcos' guidelines were promptly complied
with by his subordinates. Twenty-two (22) days
after receiving their president's memorandum,
Messrs. Hilario M. Ruiz, Constante L. Fariñas
and Geronimo Z. Velasco, in representation of
their respective corporations, executed a PRE-
INCORPORATION AGREEMENT dated
October 20, 1977. 93 In it, they undertook to
form a shipbuilding corporation to be known as
"PHIL-ASIA SHIPBUILDING CORPORATION,"
to bring to realization their president's
instructions. It would seem that the new
corporation ultimately formed was actually
named "Philippine Dockyard Corporation
(PDC)." 94
b. Letter of Instructions No.
670
Mr. Marcos did not forget Capt. Romualdez'
recommendation for a letter of instructions. On
February 14, 1978, he issued Letter of
Instructions No. 670 addressed to the
Reparations Commission REPACOM the
Philippine National Oil Company (PNOC), the
Luzon Stevedoring Company (LUSTEVECO),
and the National Development Company
(NDC). What is commanded therein is
summarized by the Solicitor General, with pithy
and not inaccurate observations as to the
effects thereof (in italics), as follows:
* * 1) the shipbuilding
equipment procured by
BASECO through reparations
be transferred to NDC subject
to reimbursement by NDC to
BASECO (of) the amount of s
allegedly representing the
handling and incidental
expenses incurred by
BASECO in the installation of
said equipment (so instead of
NDC getting paid on its loan
to BASECO, it was made to
pay BASECO instead the
amount of P18.285M); 2) the
shipbuilding equipment
procured from reparations
through EPZA, now in the
possession of BASECO and
BSDI (Bay Shipyard &
Drydocking, Inc.) be
transferred to LUSTEVECO
through PNOC; and 3) the
shipbuilding equipment (thus)
transferred be invested by
LUSTEVECO, acting through
PNOC and NDC, as the
government's equity
participation in a shipbuilding
corporation to be established
in partnership with the private
sector.
xxx xxx xxx
And so, through a simple
letter of instruction and
memorandum, BASECO's
loan obligation to NDC and
REPACOM * * in the total
amount of P83.365M and
BSD's REPACOM loan of
P32.438M were wiped out
and converted into non-voting
preferred shares. 95
20. Evidence of Marcos'
Ownership of BASECO
It cannot therefore be gainsaid that, in the
context of the proceedings at bar, the actuality
of the control by President Marcos of BASECO
has been sufficiently shown.
Other evidence submitted to the Court by the
Solicitor General proves that President Marcos
not only exercised control over BASECO, but
also that he actually owns well nigh one
hundred percent of its outstanding stock.
It will be recalled that according to petitioner-
itself, as of April 23, 1986, there were 218,819
shares of stock outstanding, ostensibly owned
by twenty (20) stockholders. 96 Four of these
twenty are juridical persons: (1) Metro Bay
Drydock, recorded as holding 136,370 shares;
(2) Fidelity Management, Inc., 65,882 shares;
(3) Trident Management, 7,412 shares; and (4)
United Phil. Lines, 1,240 shares. The first three
corporations, among themselves, own an
aggregate of 209,664 shares of BASECO stock,
or 95.82% of the outstanding stock.
Now, the Solicitor General has drawn the
Court's attention to the intriguing circumstance
that found in Malacanang shortly after the
sudden flight of President Marcos, were
certificates corresponding to more than ninety-
five percent (95%) of all the outstanding shares
of stock of BASECO, endorsed in blank,
together with deeds of assignment of practically
all the outstanding shares of stock of the three
(3) corporations above mentioned (which
hold 95.82% of all BASECO stock), signed by
the owners thereof although not notarized. 97
More specifically, found in Malacanang (and
now in the custody of the PCGG) were:
1) the deeds of assignment
of all 600 outstanding shares
of Fidelity Management Inc.
— which supposedly owns as
aforesaid 65,882 shares of
BASECO stock;
2) the deeds of assignment
of 2,499,995 of the 2,500,000
outstanding shares of Metro
Bay Drydock Corporation
— which allegedly owns
136,370 shares of BASECO
stock;
3) the deeds of assignment
of 800 outstanding shares of
Trident Management Co.,
Inc. — which allegedly owns
7,412 shares of BASECO
stock, assigned in
blank; 98 and
4) stock certificates
corresponding to 207,725 out
of the 218,819 outstanding
shares of BASECO
 stock; that is, all but 5 % — all
endorsed in blank. 99
While the petitioner's counsel was quick to
dispute this asserted fact, assuring this Court
that the BASECO stockholders were still in
possession of their respective stock certificates
and had "never endorsed * * them in blank or to
anyone else," 100 that denial is exposed by his
own prior and subsequent recorded statements
as a mere gesture of defiance rather than a
verifiable factual declaration.
By resolution dated September 25, 1986, this
Court granted BASECO's counsel a period of 10
days "to SUBMIT, as undertaken by him, * * the
certificates of stock issued to the stockholders
of * * BASECO as of April 23, 1986, as listed in
Annex 'P' of the petition.' 101 Counsel thereafter
moved for extension; and in his motion dated
October 2, 1986, he declared inter alia that
"said certificates of stock are in the possession
of third parties, among whom being the
respondents themselves * * and petitioner is still
endeavoring to secure copies thereof from
them." 102 On the same day he filed another
motion praying that he be allowed "to secure
copies of the Certificates of Stock in the name
of Metro Bay Drydock, Inc., and of all other
Certificates, of Stock of petitioner's stockholders
in possession of respondents." 103
In a Manifestation dated October 10,
1986,, 104 the Solicitor General not
unreasonably argued that counsel's aforestated
motion to secure copies of the stock certificates
"confirms the fact that stockholders of petitioner
corporation are not in possession of * * (their)
certificates of stock," and the reason, according
to him, was "that 95% of said shares * * have
been endorsed in blank and found in
Malacañang after the former President and his
family fled the country." To this manifestation
BASECO's counsel replied on November 5,
1986, as already mentioned, Stubbornly
insisting that the firm's stockholders had not
really assigned their stock. 105
In view of the parties' conflicting declarations,
this Court resolved on November 27, 1986
among other things "to require * * the petitioner
* * to deposit upon proper receipt with Clerk of
Court Juanito Ranjo the originals of the stock
certificates alleged to be in its possession or
accessible to it, mentioned and described in
Annex 'P' of its petition, (and other pleadings) *
* within ten (10) days from notice." 106 In a
motion filed on December 5,
1986, 107 BASECO's counsel made the
statement, quite surprising in the premises, that
"it will negotiate with the owners (of the
BASECO stock in question) to allow petitioner
to borrow from them, if available, the certificates
referred to" but that "it needs a more sufficient
time therefor" (sic). BASECO's counsel however
eventually had to confess inability to produce
the originals of the stock certificates, putting up
the feeble excuse that while he had "requested
the stockholders to allow * * (him) to borrow
said certificates, * * some of * * (them) claimed
that they had delivered the certificates to third
parties by way of pledge and/or to secure
performance of obligations, while others
allegedly have entrusted them to third parties in
view of last national emergency." 108 He has
conveniently omitted, nor has he offered to give
the details of the transactions adverted to by
him, or to explain why he had not impressed on
the supposed stockholders the primordial
importance of convincing this Court of their
present custody of the originals of the stock, or
if he had done so, why the stockholders are
unwilling to agree to some sort of arrangement
so that the originals of their certificates might at
the very least be exhibited to the Court. Under
the circumstances, the Court can only conclude
that he could not get the originals from the
stockholders for the simple reason that, as the
Solicitor General maintains, said stockholders in
truth no longer have them in their possession,
these having already been assigned in blank to
then President Marcos.
21. Facts Justify Issuance of Sequestration and
Takeover Orders
In the light of the affirmative showing by the
Government that, prima facie at least, the
stockholders and directors of BASECO as of
April, 1986 109 were mere "dummies,"
nominees or alter egos of President Marcos; at
any rate, that they are no longer owners of any
shares of stock in the corporation, the
conclusion cannot be avoided that said
stockholders and directors have no basis and
no standing whatever to cause the filing and
prosecution of the instant proceeding; and to
grant relief to BASECO, as prayed for in the
petition, would in effect be to restore the assets,
properties and business sequestered and taken
over by the PCGG to persons who are
"dummies," nominees or alter egos of the
former president.
From the standpoint of the PCGG, the facts
herein stated at some length do indeed show
that the private corporation known as BASECO
was "owned or controlled by former President
Ferdinand E. Marcos * * during his
administration, * * through nominees, by taking
advantage of * * (his) public office and/or using *
* (his) powers, authority, influence * *," and that
NASSCO and other property of the government
had been taken over by BASECO; and the
situation justified the sequestration as well as
the provisional takeover of the corporation in the
public interest, in accordance with the terms of
Executive Orders No. 1 and 2, pending the filing
of the requisite actions with the Sandiganbayan
to cause divestment of title thereto from Marcos,
and its adjudication in favor of the Republic
pursuant to Executive Order No. 14.
As already earlier stated, this Court agrees that
this assessment of the facts is correct;
accordingly, it sustains the acts of sequestration
and takeover by the PCGG as being in accord
with the law, and, in view of what has thus far
been set out in this opinion, pronounces to be
without merit the theory that said acts, and the
executive orders pursuant to which they were
done, are fatally defective in not according to
the parties affected prior notice and hearing, or
an adequate remedy to impugn, set aside or
otherwise obtain relief therefrom, or that the
PCGG had acted as prosecutor and judge at
the same time.
22. Executive Orders Not a Bill of Attainder
Neither will this Court sustain the theory that the
executive orders in question are a bill of
attainder. 110 "A bill of attainder is a legislative
act which inflicts punishment without judicial
trial." 111 "Its essence is the substitution of a
legislative for a judicial determination of
guilt." 112
In the first place, nothing in the executive orders
can be reasonably construed as a determination
or declaration of guilt. On the contrary, the
executive orders, inclusive of Executive Order
No. 14, make it perfectly clear that any
judgment of guilt in the amassing or acquisition
of "ill-gotten wealth" is to be handed down by a
judicial tribunal, in this case,
the Sandiganbayan, upon complaint filed and
prosecuted by the PCGG. In the second place,
no punishment is inflicted by the executive
orders, as the merest glance at their provisions
will immediately make apparent. In no sense,
therefore, may the executive orders be
regarded as a bill of attainder.
23. No Violation of Right against Self-
Incrimination and Unreasonable Searches and
Seizures
BASECO also contends that its right against
self incrimination and unreasonable searches
and seizures had been transgressed by the
Order of April 18, 1986 which required it "to
produce corporate records from 1973 to 1986
under pain of contempt of the Commission if it
fails to do so." The order was issued upon the
authority of Section 3 (e) of Executive Order No.
1, treating of the PCGG's power to "issue
subpoenas requiring * * the production of such
books, papers, contracts, records, statements of
accounts and other documents as may be
material to the investigation conducted by the
Commission, " and paragraph (3), Executive
Order No. 2 dealing with its power to "require all
persons in the Philippines holding * * (alleged
"ill-gotten") assets or properties, whether
located in the Philippines or abroad, in their
names as nominees, agents or trustees, to
make full disclosure of the same * *." The
contention lacks merit.
It is elementary that the right against self-
incrimination has no application to juridical
persons.
While an individual may
lawfully refuse to answer
incriminating questions unless
protected by an immunity
statute, it does not follow that
a corporation, vested with
special privileges and
franchises, may refuse to
show its hand when charged
with an abuse
ofsuchprivileges * * 113
Relevant jurisprudence is also cited by the
Solicitor General. 114
* * corporations are not
entitled to all of the
constitutional protections
which private individuals
have. * * They are not at all
within the privilege against
self-incrimination, although
this court more than once has
said that the privilege runs
very closely with the 4th
Amendment's Search and
Seizure provisions. It is also
settled that an officer of the
company cannot refuse to
produce its records in its
possession upon the plea that
they will either incriminate him
or may incriminate
it." (Oklahoma Press
Publishing Co. v. Walling, 327
U.S. 186; emphasis, the
Solicitor General's).
* * The corporation is a
creature of the state. It is
presumed to be incorporated
for the benefit of the public. It
received certain special
privileges and franchises, and
holds them subject to the
laws of the state and the
limitations of its charter. Its
powers are limited by law. It
can make no contract not
authorized by its charter. Its
rights to act as a corporation
are only preserved to it so
long as it obeys the laws of its
creation. There is a reserve
right in the legislature to
investigate its contracts and
 find out whether it has
exceeded its powers. It would
be a strange anomaly to hold
that a state, having chartered
a corporation to make use of
certain franchises, could not,
in the exercise of sovereignty,
inquire how these franchises
had been employed, and
whether they had been
abused, and demand the
production of the corporate
books and papers for that
purpose. The defense
amounts to this, that an
officer of the corporation
which is charged with a
criminal violation of the
statute may plead the
criminality of such corporation
as a refusal to produce its
books. To state this
proposition is to answer
it. While an individual may
lawfully refuse to answer
incriminating questions unless
protected by an immunity
statute, it does not follow that
a corporation, vested with
special privileges and
franchises may refuse to
show its hand when charged
with an abuse of such
privileges. (Wilson v. United
States, 55 Law Ed., 771, 780
[emphasis, the Solicitor
General's])
At any rate, Executive Order No. 14-A,
amending Section 4 of Executive Order No. 14
assures protection to individuals required to
produce evidence before the PCGG against any
possible violation of his right against self-
incrimination. It gives them immunity from
prosecution on the basis of testimony or
information he is compelled to present. As
amended, said Section 4 now provides that —
xxx xxx xxx
The witness may not refuse to
comply with the order on the
basis of his privilege against
self-incrimination; but no
testimony or other information
compelled under the order (or
any information directly or
indirectly derived from such
testimony, or other
information) may be used
against the witness in any
criminal case, except a
prosecution for perjury, giving
a false statement, or
otherwise failing to comply
with the order.
The constitutional safeguard against
unreasonable searches and seizures finds no
application to the case at bar either. There has
been no search undertaken by any agent or
representative of the PCGG, and of course no
seizure on the occasion thereof.
24. Scope and Extent of Powers of the PCGG
One other question remains to be disposed of,
that respecting the scope and extent of the
powers that may be wielded by the PCGG with
regard to the properties or businesses placed
under sequestration or provisionally taken over.
Obviously, it is not a question to which an
answer can be easily given, much less one
which will suffice for every conceivable
situation.
a. PCGG May Not Exercise
Acts of Ownership
One thing is certain, and should be stated at the
outset: the PCGG cannot exercise acts of
dominion over property sequestered, frozen or
provisionally taken over. AS already earlier
stressed with no little insistence, the act of
sequestration; freezing or provisional takeover
of property does not import or bring about a
divestment of title over said property; does not
make the PCGG the owner thereof. In relation
to the property sequestered, frozen or
provisionally taken over, the PCGG is a
conservator, not an owner. Therefore, it can not
perform acts of strict ownership; and this is
specially true in the situations contemplated by
the sequestration rules where, unlike cases of
receivership, for example, no court exercises
effective supervision or can upon due
application and hearing, grant authority for the
performance of acts of dominion.
Equally evident is that the resort to the
provisional remedies in question should entail
the least possible interference with business
operations or activities so that, in the event that
the accusation of the business enterprise being
"ill gotten" be not proven, it may be returned to
its rightful owner as far as possible in the same
condition as it was at the time of sequestration.
b. PCGG Has Only Powers of
Administration
The PCGG may thus exercise only powers of
administration over the property or business
sequestered or provisionally taken over, much
like a court-appointed receiver, 115 such as to
bring and defend actions in its own name;
receive rents; collect debts due; pay
outstanding debts; and generally do such other
acts and things as may be necessary to fulfill its
mission as conservator and administrator. In
this context, it may in addition enjoin or restrain
any actual or threatened commission of acts by
any person or entity that may render moot and
academic, or frustrate or otherwise make
ineffectual its efforts to carry out its task; punish
for direct or indirect contempt in accordance
with the Rules of Court; and seek and secure
the assistance of any office, agency or
instrumentality of the government. 116 In the
case of sequestered businesses generally (i.e.,
going concerns, businesses in current
operation), as in the case of sequestered
objects, its essential role, as already discussed,
is that of conservator, caretaker, "watchdog" or
overseer. It is not that of manager, or innovator,
much less an owner.
c. Powers over Business
Enterprises Taken Over by
Marcos or Entities or Persons
Close to him; Limitations
Thereon
Now, in the special instance of a business
enterprise shown by evidence to have been
"taken over by the government of the Marcos
Administration or by entities or persons close to
former President Marcos," 117 the PCGG is
given power and authority, as already adverted
to, to "provisionally take (it) over in the public
interest or to prevent * * (its) disposal or
dissipation;" and since the term is obviously
employed in reference to going concerns, or
business enterprises in operation, something
more than mere physical custody is connoted;
the PCGG may in this case exercise some
measure of control in the operation, running, or
management of the business itself. But even in
this special situation, the intrusion into
management should be restricted to the
minimum degree necessary to accomplish the
legislative will, which is "to prevent the disposal
or dissipation" of the business enterprise. There
should be no hasty, indiscriminate, unreasoned
replacement or substitution of management
officials or change of policies, particularly in
respect of viable establishments. In fact, such a
replacement or substitution should be avoided if
at all possible, and undertaken only when
justified by demonstrably tenable grounds and
in line with the stated objectives of the PCGG.
And it goes without saying that where
replacement of management officers may be
called for, the greatest prudence,
circumspection, care and attention - should
accompany that undertaking to the end that
truly competent, experienced and honest
managers may be recruited. There should be no
role to be played in this area by rank amateurs,
no matter how wen meaning. The road to hell, it
has been said, is paved with good intentions.
The business is not to be experimented or
played around with, not run into the ground, not
driven to bankruptcy, not fleeced, not ruined.
Sight should never be lost sight of the ultimate
objective of the whole exercise, which is to turn
over the business to the Republic, once
judicially established to be "ill-gotten." Reason
dictates that it is only under these conditions
and circumstances that the supervision,
administration and control of business
enterprises provisionally taken over may
legitimately be exercised.
d. Voting of Sequestered
Stock; Conditions Therefor
So, too, it is within the parameters of these
conditions and circumstances that the PCGG
may properly exercise the prerogative to vote
sequestered stock of corporations, granted to it
by the President of the Philippines through a
Memorandum dated June 26, 1986. That
Memorandum authorizes the PCGG, "pending
the outcome of proceedings to determine the
ownership of * * (sequestered) shares of stock,"
"to vote such shares of stock as it may have
sequestered in corporations at all stockholders'
meetings called for the election of directors,
declaration of dividends, amendment of the
Articles of Incorporation, etc." The
Memorandum should be construed in such a
manner as to be consistent with, and not
contradictory of the Executive Orders earlier
promulgated on the same matter. There should
be no exercise of the right to vote simply
because the right exists, or because the stocks
sequestered constitute the controlling or a
substantial part of the corporate voting power.
The stock is not to be voted to replace directors,
or revise the articles or by-laws, or otherwise
bring about substantial changes in policy,
program or practice of the corporation except
for demonstrably weighty and defensible
grounds, and always in the context of the stated
purposes of sequestration or provisional
takeover, i.e., to prevent the dispersion or
undue disposal of the corporate assets.
Directors are not to be voted out simply
because the power to do so exists. Substitution
of directors is not to be done without reason or
rhyme, should indeed be shunned if at an
possible, and undertaken only when essential to
prevent disappearance or wastage of corporate
property, and always under such circumstances
as assure that the replacements are truly
possessed of competence, experience and
probity.
In the case at bar, there was adequate
justification to vote the incumbent directors out
of office and elect others in their stead because
the evidence showed prima facie that the former
were just tools of President Marcos and were no
longer owners of any stock in the firm, if they
ever were at all. This is why, in its Resolution of
October 28, 1986; 118 this Court declared that
—
Petitioner has failed to make
out a case of grave abuse or
 excess of jurisdiction in
respondents' calling and
holding of a stockholders'
meeting for the election of
directors as authorized by the
Memorandum of the
President * * (to the PCGG)
dated June 26, 1986,
particularly, where as in this
case, the government can,
through its designated
directors, properly exercise
control and management over
what appear to be properties
and assets owned and
belonging to the government
itself and over which the
persons who appear in this
case on behalf of BASECO
have failed to show any right
or even any shareholding in
said corporation.
It must however be emphasized that the
conduct of the PCGG nominees in the BASECO
Board in the management of the company's
affairs should henceforth be guided and
governed by the norms herein laid down. They
should never for a moment allow themselves to
forget that they are conservators, not owners of
the business; they are fiduciaries, trustees, of
whom the highest degree of diligence and
rectitude is, in the premises, required.
25. No Sufficient Showing of Other Irregularities
As to the other irregularities complained of by
BASECO, i.e., the cancellation or revision, and
the execution of certain contracts, inclusive of
the termination of the employment of some of its
executives, 119 this Court cannot, in the
present state of the evidence on record, pass
upon them. It is not necessary to do so. The
issues arising therefrom may and will be left for
initial determination in the appropriate action.
But the Court will state that absent any showing
of any important cause therefor, it will not
normally substitute its judgment for that of the
PCGG in these individual transactions. It is
clear however, that as things now stand, the
petitioner cannot be said to have established
the correctness of its submission that the acts of
the PCGG in question were done without or in
excess of its powers, or with grave abuse of
discretion.
WHEREFORE, the petition is dismissed. The
temporary restraining order issued on October
14, 1986 is lifted.
Yap, Fernan, Paras, Gancayco and Sarmiento,
JJ., concur.
Separate Opinions
TEEHANKEE, CJ., concurring:
I fully concur with the masterly opinion of Mr.
Justice Narvasa. In the process of disposing of
the issues raised by petitioner BASECO in the
case at bar, it comprehensively discusses the
laws and principles governing the Presidential
Commission on Good Government (PCGG) and
defines the scope and extent of its powers in
the discharge of its monumental task of
recovering the "ill-gotten wealth, accumulated
by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and
close associates, whether located in the
Philippines or abroad (and) business
enterprises and entities owned or controlled by
them during I . . .(the Marcos) administration,
directly or through nominees, by taking undue
advantage of their public office and/or using
their powers, authority, influence, connections
or relationship." 1
The Court is unanimous insofar as the judgment
at bar upholds the imperative need of
recovering the ill-gotten properties amassed by
the previous regime, which "deserves the fullest
support of the judiciary and all sectors of
society." 2 To quote the pungent language of
Mr. Justice Cruz, "(T)here is no question that all
lawful efforts should be taken to recover the
tremendous wealth plundered from the people
by the past regime in the most execrable
thievery perpetrated in all history. No right-
thinking Filipino can quarrel with this necessary
objective, and on this score I am happy to
concur with the ponencia." 3
The Court is likewise unanimous in its judgment
dismissing the petition to declare
unconstitutional and void Executive Orders Nos.
1 and 2 to annul the sequestration order of April
14, 1986. For indeed, the 1987 Constitution
overwhelmingly adopted by the people at the
February 2, 1987 plebiscite expressly
recognized in Article XVIII, section 26
thereof 4 the vital functions of respondent
PCGG to achieve the mandate of the people to
recover such ill-gotten wealth and properties as
ordained by Proclamation No. 3 promulgated on
March 25, 1986.
The Court is likewise unanimous as to the
general rule set forth in the main opinion that
"the PCGG cannot exercise acts of dominion
over property sequestered, frozen or
provisionally taken over" and "(T)he PCGG may
thus exercise only powers of administration over
the property or business sequestered or
provisionally taken over, much like a court-
appointed receiver, such as to bring and defend
actions in its own name; receive rents; collect
debts due; pay outstanding debts; and generally
do such other acts and things as may be
necessary to fulfill its mission as conservator
and administrator. In this context, it may in
addition enjoin or restrain any actual or
threatened commission of acts by any person or
entity that may render moot and academic, or
frustrate or otherwise make ineffectual its efforts
to carry out its task; punish for direct or indirect
contempt in accordance with the Rules of Court;
and seek and secure the assistance of any
office, agency or instrumentality of the
government. In the case of sequestered
businesses generally (i.e. going concerns,
business in current operation), as in the case of
sequestered objects, its essential role, as
already discussed, is that of conservator,
caretaker, 'watchdog' or overseer. It is not that
of manager, or innovator, much less an
owner." 5
Now, the case at bar involves one where the
third and most encompassing and rarely
invoked of provisional remedies, 6 the
provisional takeover of the Baseco properties
and business operations has been availed of by
the PCGG, simply because the evidence on
hand, not only prima facie but convincingly with
substantial and documentary evidence of record
establishes that the corporation known as
petitioner BASECO "was owned or controlled by
President Marcos 'during his administration,
through nominees, by taking undue advantage
of his public office and/or using his powers,
authority, or influence;' and that it was by and
through the same means, that BASECO had
taken over the business and/or assets of the
[government-owned] National Shipyard and
Engineering Co., Inc., and other government-
owned or controlled entities." The documentary
evidence shows that petitioner BASECO (read
Ferdinand E. Marcos) in successive
transactions all directed and approved by the
former President-in an orgy of what according to
the PCGG's then chairman, Jovito Salonga, in
his statement before the 1986 Constitutional
Commission, "Mr. Ople once called 'organized
pillage' "-gobbled up the government
corporation National Shipyard & Steel
Corporation NASSCO its shipyard at Mariveles,
300 hectares of land in Mariveles from the
Export Processing Zone Authority, Engineer
Island itself in Manila and its complex of
equipment and facilities including structures,
buildings, shops, quarters, houses, plants and
expendable or semi-expendable assets and
obtained huge loans of $19,000,000.00 from the
last available Japanese war damage fund,
P30,000,000.00 from the NDC and
P12,400,000.00 from the GSIS. The sordid
details are set forth in detail in Paragraphs 1 1
to 20 of the main opinion. They include
confidential reports from then BASECO
president Hilario M. Ruiz and the deposed
President's brother-in- law, then Captain (later
Commodore) Alfredo Romualdez, who although
not on record as an officer or stockholder of
BASECO reported directly to the deposed
President on its affairs and made the
recommendations, all approved by the latter, for
the gobbling up by BASECO of all the choice
government assets and properties.
All this evidence has been placed of record in
the case at bar. And petitioner has had all the
time and opportunity to refute it, submittals to
the contrary notwithstanding, but has dismally
failed to do so. To cite one glaring instance: as
stated in the main opinion, the evidence
submitted to this Court by the Solicitor General
"proves that President Marcos not only
exercised control over BASECO, but also that
he actually owns well nigh one hundred percent
of its outstanding stock." It cites the fact that
three corporations, evidently front or dummy
corporations, among twenty shareholders, in
name, of BASECO, namely Metro Bay Drydock,
Fidelity Management, Inc. and Trident
Management hold 209,664 shares or 95.82%,
of BASECO's outstanding stock. Now, the
Solicitor General points out further than
BASECO certificates "corresponding to more
than ninety-five percent (95%) of all the
outstanding shares of stock of BASECO,
endorsed in blank, together with deeds of
assignment of practically all the outstanding
shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all
BASECO stock), signed by the owners thereof
although not notarized" 7 were found in
Malacañang shortly after the deposed
President's sudden flight from the country on
the night of February 25, 1986. Thus, the main
opinion's unavoidable conclusion that "(W)hile
the petitioner's counsel was quick to dispute this
asserted fact, assuring this Court that the
BASECO stockholders were still in possession
of their respective stock certificates and had
'never endorsed * * * them in blank or to anyone
else,' that denial is exposed by his own prior
and subsequent recorded statements as a mere
gesture of defiance rattler than a verifiable
factual declaration . . . . Under the
circumstances, the Court can only conclude that
he could not get the originals from the
stockholders for the simple reason that as the
Solicitor General maintains, said stockholders in
truth no longer have them in their possession,
these having already been assigned in blank to
President Marcos."8
With this strong unrebutted evidence of record
in this Court, Justice Melencio-Herrera, joined
by Justice Feliciano, expressly concurs with the
main opinion upholding the commission's take-
over, stating that "(I) have no objection to
according the right to vote sequestered stock in
case of a takeover of business actually
belonging to the government or whose
capitalization comes from public funds but
which, somehow, landed in the hands of private
persons, as in the case of BASECO." They
merely qualify their concurrence with the
injunction that such takeovers be exercised with
"caution and prudence" pending the
determination of "the true and real ownership"
of the sequestered shares. Suffice it to say in
this regard that each case has to be judged
from the pertinent facts and circumstances and
that the main opinion emphasizes sufficiently
that it is only in the special instances specified
in the governing laws grounded on the superior
national interest and welfare and the practical
necessity of preserving the property and
preventing its loss or disposition that the
provisional remedy of provisional take-over is
exercised.
Here, according to the dissenting opinion, "the
PCGG concludes that sequestered property is
ill-gotten wealth and proceeds to exercise acts
of ownership over said properties . . . . and adds
that "the fact of ownership must be established
in a proper suit before a court of justice"-which
this Court has preempted with its finding that "in
the context of the proceedings at bar, the
actuality of the control by President Marcos of
BASECO has been sufficiently shown."
But BASECO who has instituted this action to
set aside the sequestration and take-over
orders of respondent commission has chosen to
raise these very issues in this Court. We cannot
ostrich-like hide our head in the sand and say
that it has not yet been established in the proper
court that what the PCGG has taken over here
are government properties, as a matter of
record and public notice and knowledge, like the
NASSCO, its Engineer Island and Mariveles
Shipyard and entire complex, which have been
pillaged and placed in the name of the dummy
or front company named BASECO but from all
the documentary evidence of record shown by
its street certificates all found in Malacanang
should in reality read "Ferdinand E. Marcos"
and/or his brother-in-law. Such take-over can in
no way be termed "lawless usurpation," for the
government does not commit any act of
usurpation in taking over its own properties that
have been channeled to dummies, who are
called upon to prove in the proper court action
what they have failed to do in this Court, that
they have lawfully acquired ownership of said
properties, contrary to the documentary
evidence of record, which they must likewise
explain away. This Court, in the exercise of its
jurisdiction on certiorari and as the guardian of
the Constitution and protector of the people's
basic constitutional rights, has entertained many
petitions on the part of parties claiming to be
adversely affected by sequestration and other
orders of the PCGG, This Court set the criterion
that such orders should issue only upon
showing of a prima facie case, which criterion
was adopted in the 1987 Constitution. The
Court's judgment cannot be faulted if much
more than a prima facie has been shown in this
case, which the faceless figures claiming to
represent BASECO have failed to refute or
disprove despite all the opportunity to do so.
The record plainly shows that petitioner
BASECO which is but a mere shell to mask its
real owner did not and could not explain how
and why they received such favored and
preferred treatment with tailored Letters of
Instruction and handwritten personal approval of
the deposed President that handed it on a silver
platter the whole complex and properties of
NASSCO and Engineer Island and the
Mariveles Shipyard.
It certainly would be the height of absurdity and
helplessness if this government could not here
and now take over the possession and custody
of its very own properties and assets that had
been stolen from it and which it had pledged to
recover for the benefit and in the greater
interest of the Filipino people, whom the past
regime had saddled with a huge $27-billion
foreign debt that has since ballooned to $28.5-
billion.
Thus, the main opinion correctly concludes that
"(I)n the light of the affirmative showing by the
Government that, prima facie at least, the
stockholders and directors of BASECO as of
April, 1986 were mere 'dummies,' nominees
or alter egos of President Marcos; at any rate,
that they are no longer owners of any shares of
stock in the corporation, the conclusion cannot
be avoided that said stockholders and directors
have no basis and no standing whatever to
cause the filing and prosecution of the instant
proceeding; and to grant relief to BASECO, as
prayed for in the petition, would in effect be to
restore the assets, properties and business
sequestered and taken over by the PCGG to
persons who are 'dummies' nominees or alter
egos of the former President." 9
And Justice Padilla in his separate concurrence
"called a spade a spade," citing the street
certificates representing 95 % of BASECO's
outstanding stock found in Malacañang after Mr.
Marcos' hasty flight in February, 1986 and the
extent of the control he exercised over policy
decisions affecting BASECO and concluding
that "Consequently, even ahead of judicial
proceedings, I am convinced that the Republic
of the Philippines, thru the PCGG, has the right
and even the duty to take over full control and
supervision of BASECO."
Indeed, the provisional remedies available to
respondent commission are rooted in the police
power of the State, the most pervasive and the
least limitable of the powers of Government
since it represents "the power of sovereignty,
the power to govern men and things within the
limits of its domain." 10 Police power has been
defined as the power inherent in the State "to
prescribe regulations to promote the health,
morals, education, good order or safety, and
general welfare of the people." 11 Police power
rests upon public necessity and upon the right
of the State and of the public to self-
protection. 12 "Salus populi suprema est lex" or
"the welfare of the people is the Supreme
Law." 13 For this reason, it is co-extensive with
the necessities of the case and the safeguards
of public interest. 14 Its scope expands and
contracts with changing needs. 15 "It may be
said in a general way that the police power
extends to all the great public needs. It may be
put forth in aid of what is sanctioned by usage,
or held by the prevailing morality or strong and
preponderant opinion to be greatly and
immediately necessary to the public
welfare." 16 That the public interest or the
general welfare is subserved by sequestering
the purported ill-gotten assets and properties
and taking over stolen properties of the
government channeled to dummy or front
companies is stating the obvious. The recovery
of these ill-gotten assets and properties would
greatly aid our financially crippled government
and hasten our national economic recovery, not
to mention the fact that they rightfully belong to
the people. While as a measure of self-
protection, if, in the interest of general welfare,
police power may be exercised to protect
citizens and their businesses in financial and
economic matters, it may similarly be exercised
to protect the government itself against potential
financial loss and the possible disruption of
governmental functions. 17 Police power as the
power of self-protection on the part of the
community bears the same relation to the
community that the principle of self-defense
bears to the individual. 18 Truly, it may be said
that even more than self- defense, the recovery
of ill-gotten wealth and of the government's own
properties involves the material and moral
survival of the nation, marked as the past
regime was by the obliteration of any line
between private funds and the public treasury
and abuse of unlimited power and elimination of PCGG has turned over to the
any accountability in public office, as the Office of the President around
evidence of record amply shows. 2 billion pesos in cash, free of
any lien. It has also delivered
It should be mentioned that the tracking down of to the President-as a result of
the deposed President's actual ownership of the a compromise settlement-
BASECO shares was fortuitously facilitated by around 200 land titles
the recovery of the street certificates in involving vast tracks of land in
Malacañang after his hasty flight from the Metro Manila, Rizal, Laguna,
country last year. This is not generally the case. Cavite, and Bataan, worth
several billion pesos. These
lands are now available for
For example, in the ongoing case filed by the low-cost housing projects for
government to recover from the Marcoses the benefit of the poor and the
valuable real estate holdings in New York and dispossessed amongst our
the Lindenmere estate in Long Island, former people.
PCGG chairman Jovito Salonga has revealed
that their names "do not appear on any title to
the property. Every building in New York is titled In the legal custody of the
Commission as a result of
in the name of a Netherlands Antilles
corporation, which in turn is purportedly owned sequestration proceedings,
are expensive jewelry
by three Panamanian corporations, with bearer
shares. This means that the shares of this amounting to 310 million
pesos, 42 aircraft amounting
corporation can change hands any time, since
they can be transferred, under the law of to 718 million pesos, vessels
amounting to 748 million
Panama, without previous registration on the
books of the corporation. One of the first pesos, and shares of stock
amounting to around 215
documents that we discovered shortly after the
February revolution was a declaration of trust million pesos.
handwritten by Mr. Joseph Bernstein on April 4,
1982 on a Manila Peninsula Hotel stationery But, as I said, the bulk of the
stating that he would act as a trustee for the ill-gotten wealth is located
benefit of President Ferdinand Marcos and abroad, not in the Philippines.
would act solely pursuant to the instructions of Through the efforts of the
Marcos with respect to the Crown Building in PCGG, we have caused the
New York." 19 freezing or sequestration of
properties, deposits, and
This is just to stress the difficulties of the tasks securities probably worth
confronting respondent PCGG, which many billions of pesos in New
nevertheless has so far commendably produced York, New Jersey, Hawaii,
unprecedented positive results. As stated by California, and more
then chairman Salonga: importantly-in Switzerland.
Due to favorable
developments in Switzerland,
we may expect, according to
 our Swiss lawyers, the first
deliveries of the Swiss
deposits in the foreseeable
future, perhaps in less than a
year's time. In New York,
PCGG through its lawyers
who render their services free
of cost to the Philippine
government, succeeded in
getting injunctive relief
against Mr. and Mrs. Marcos
and their nominees and
agents. There is now an offer
for settlement that is being
studied and explored by our
lawyers there.
If we succeed in recovering
not an (since this is
impossible) but a substantial
part of the ill-gotten wealth
here and in various countries
of the world — something the
revolutionary governments of
China, Ethiopia, Iran and
Nicaragua were not able to
accomplish at all with respect
to properties outside their
territorial boundaries — the
Presidential Commission on
Good Government, which has
undertaken the difficult and
thankless task of trying to
undo what had been done so
secretly and effectively in the
last twenty years, shall have
more than justified its
existence. 20
The misdeeds of some PCGG volunteers and
personnel cited in the dissenting opinion do not
detract at an from the PCGG's
accomplishments, just as no one would do
away with newspapers because of some
undesirable elements. The point is that all such
misdeeds have been subject to public exposure
and as stated in the dissent itself, the erring
PCGG representatives have been forthwith
dismissed and replaced.
The magnitude of the tasks that confront
respondent PCGG with its limited resources and
staff support and volunteers should be
appreciated, together with the assistance that
foreign governments and lawyers have
spontaneously given the commission.
A word about the PCGG's firing of the BASECO
lawyers who filed the present petition
challenging its questioned orders, filing a motion
to withdraw the petition, after it had put in eight
of its representatives as directors of the
BASECO board of directors. This was entirely
proper and in accordance with the Court's
Resolution of October 28, 1986, which denied
BASECO's motion for the issuance of a
restraining order against such take-over and
declared that "the government can, through its
designated directors, properly exercise control
and management over what appear to
be properties and assets owned and belonging
to the government itself and over which the
persons who appear in this case on behalf of
BASECO have failed to show any eight or even
any shareholding in said corporation." In other
words, these dummies or fronts cannot seek to
question the government's right to recover the
very properties and assets that have been
stolen from it by using the very same stolen
properties and funds derived therefrom. If they
wish to pursue their own empty claim, they must
do it on their own, after first establishing that
they indeed have a lawful right and/or
shareholding in BASECO.
Under the 1987 Constitution, the PCGG is
called upon to file the judicial proceedings for
forfeiture and recovery of the sequestered or
frozen properties covered by its orders issued
before the ratification of the Constitution on
February 2, 1987, within six months from such
ratification, or by August 2, 1987. (For those
orders issued after such ratification, the judicial
action or proceeding must be commenced
within six months from the issuance thereof.)
The PCGG has not really been given much
time, considering the magnitude of its tasks. It is
entitled to some forbearance, in availing of the
maximum time granted it for the filing of the
corresponding judicial action with the
Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice
Narvasa maintains and upholds the valid
distinction between acts of conservation and
preservation of assets and acts of ownership.
Sequestration, freeze and temporary take-over
encompass the first type of acts. They do not
include the second type of acts which are
reserved only to the rightful owner of the assets
or business sequestered or temporarily taken
over.
The removal and election of members of the
board of directors of a corporate enterprise is, to
me, a clear act of ownership on the part of the
shareholders of the corporation. Under ordinary
circumstances, I would deny the PCGG the
authority to change and elect the members of
BASECO's Board of Directors. However, under
the facts as disclosed by the records, it appears
that the certificates of stock representing about
ninety-five (95%) per cent of the total ownership
in BASECO's capital stock were found endorsed
in blank in Malacanang (presumably in the
possession and control of Mr. Marcos) at the
time he and his family fled in February 1986.
This circumstance let alone the extent of the
control Mr. Marcos exercised, while in power,
over policy decisions affecting BASECO,
entirely satisfies my mind that BASECO was
owned and controlled by Mr. Marcos. This is
calling a spade a spade. I am also entirely
satisfied in my mind that Mr. Marcos could not
have acquired the ownership of BASECO out of
his lawfully-gotten wealth.
Consequently, even ahead of judicial
proceedings, I am convinced that the Republic
of the Philippines, through the PCGG, has the
right and even the duty to take-over full control
and supervision of BASECO.
MELENCIO-HERRERA, J., concurring:
I would like to qualify my concurrence in so far
as the voting of sequestered stork is concerned.
The voting of sequestered stock is, to my mind,
an exercise of an attribute of ownership. It goes
beyond the purpose of a writ of sequestration,
which is essentially to preserve the property in
litigation (Article 2005, Civil Code).
Sequestration is in the nature of a judicial
deposit (ibid.).
I have no objection to according the right to vote
sequestered stock in case of a take-over of
business actually belonging to the government
or whose capitalization comes from public funds
but which, somehow, landed in the hands of
private persons, as in the case of BASECO. To
my mind, however, caution and prudence
should be exercised in the case of sequestered
shares of an on-going private business
enterprise, specially the sensitive ones, since
the true and real ownership of said shares is yet
to be determined and proven more conclusively
by the Courts.
It would be more in keeping with legal norms if
forfeiture proceedings provided for under
Republic Act No. 1379 be filed in Court and the
PCGG seek judicial appointment as a receiver
or administrator, in which case, it would be
empowered to vote sequestered shares under
its custody (Section 55, Corporation Code).
Thereby, the assets in litigation are brought
within the Court's jurisdiction and the presence
of an impartial Judge, as a requisite of due
process, is assured. For, even in its historical
context, sequestration is a judicial matter that is
best handled by the Courts.
I consider it imperative that sequestration
measures be buttressed by judicial proceedings
the soonest possible in order to settle the matter
of ownership of sequestered shares and to
determine whether or not they are legally owned
by the stockholders of record or are "ill-gotten
wealth" subject to forfeiture in favor of the State.
Sequestration alone, being actually an ancillary
remedy to a principal action, should not be
made the basis for the exercise of acts of
dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and
severe remedy. It should be confined to its
lawful parameters and exercised, with due
regard, in the words of its enabling laws, to the
requirements of fairness, due process
(Executive Order No. 14, palay 7, 1986), and
Justice (Executive Order No. 2, March 12,
1986).
Feliciano, J., concur.
GUTIERREZ, JR., J., concurring and
dissenting:
I concur, in part, in the erudite opinion penned
for the Court by my distinguished colleague Mr.
Justice Andres R. Narvasa. I agree insofar as it
states the principles which must govern PCGG
sequestrations and emphasizes the limitations
in the exercise of its broad grant of powers.
I concur in the general propositions embodied in
or implied from the majority opinion, among
them:
(1) The efforts of Government to recover ill-
gotten properties amassed by the previous
regime deserve the fullest support of the
judiciary and all sectors of society. I believe,
however, that a nation professing adherence to
the rule of law and fealty to democratic
processes must adopt ways and means which
are always within the bounds of lawfully granted
authority and which meet the tests of due
process and other Bill of Rights protections.
(2) Sequestration is intended to prevent the
destruction, concealment, or dissipation of ill-
gotten wealth. The object is conservation and
preservation. Any exercise of power beyond
these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as
are granted by law and not proscribed by the
Constitution. The remedies it enforces are
provisional and contingent. Whether or not
sequestered property is indeed ill-gotten must
be-determined by a court of justice. The PCGG
has absolutely no power to divest title over
sequestered property or to act as if its findings
are final.
(4) The PCGG does not own sequestered
property. It cannot and must not exercise acts of
ownership. To quote the majority opinion, "one
thing is certain ..., the PCGG cannot exercise
acts of dominion."
(5) The provisional takeover in a sequestration
should not be indefinitely maintained. It is the
duty of the PCGG to immediately file
appropriate criminal or civil cases once the
evidence has been gathered.
It is the difference between what the Court says
and what the PCGG does which constrains me
to dissent. Even as the Court emphasizes
principles of due process and fair play, it has
unfortunately validated ultra vires acts violative
of those very same principles. While we stress
the rules which must govern the PCGG in the
exercise of its powers, the Court has failed to
stop or check acts which go beyond the power
of sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is
not a judge. It is an investigator and prosecutor.
Sequestration is only a preliminary or ancillary
remedy. There must be a principal and
independent suit filed in court to establish the
true ownership of sequestered properties. The
factual premise that a sequestered property was
ill-gotten by former President Marcos, his family,
relatives, subordinates, and close
associates cannot be assumed. The fact of
ownership must be established in a proper suit
before a court of justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are
dedicated to a statement of facts
which conclusively and indubitably shows that
BASECO is owned by President Marcos-and
that it was acquired and vastly enlarged by the
former President's taking undue advantage of
his public office and using his powers, authority,
or influence.
There has been no court hearing, no trial, and
no presentation of evidence. All that we have is
what the PCGG has given us. The petitioner
has not even been allowed to see the evidence,
much less refute it.
What the PCGG has gathered in the course of
its seizures and investigations may be gospel
truth. However, that truth must be properly
established in a trial court, not unilaterally
determined by the PCGG or declared by this
Court in a special proceeding which only asks
us to set aside or enjoin an illegal exercise of
power. After this decision, there is nothing more
for a trial court to ascertain. Certainly, no lower
court would dare to arrive at findings contrary to
this Court's conclusions, no matter how insistent
we may be in labelling such conclusions
as "prima facie." To me, this is the basic flaw in
PCGG procedures that the Court is, today,
unwittingly legitimating. Even before the
institution of a court case, the PCGG concludes
that sequestered property is ill-gotten wealth
and proceeds to exercise acts of ownership
over said properties. It treats sequestered
property as its own even before the oppositor-
owners have been divested of their titles.
The Court declares that a state of seizure is not
to be indefinitely maintained. This means that
court proceedings to either forfeit the
sequestered properties or clear the names and
titles of the petitioners must be filed as soon as
possible.
This case is a good example of disregard or
avoidance of this requirement. With the kind of
evidence which the PCGG professes to
possess, the forfeiture case could have been
filed simultaneously with the issuance of
sequestration orders or shortly thereafter.
And yet, the records show that the PCGG
appears to concentrate more on the means
rather than the ends, in running the BASECO,
taking over the board of directors and
management, getting rid of security guards,
disposing of scrap, entering into new contracts
and otherwise behaving as if it were already the
owner. At this late date and with all the
evidence PCGG claims to have, no court case
has been filed.
Among the interesting items elicited during the
oral arguments or found in the records of this
petition are:
(1) Upon sequestering BASECO, some PCGG
personnel lost no time in digging up paved
premises with jack hammers in a frantic search
for buried gold bars.
(2) Two top PCGG volunteers charged each
other with stealing properties under their
custody. The PCGG had to step in, dismiss the
erring representatives, and replace them with
new ones.
(3) The petitioner claims that the lower bid of a
rock quarry operator was accepted even as a
higher and more favorable bid was offered.
When the questionable deal was brought to our
attention, the awardee allegedly raised his bid
to the level of the better offer. The successful
bidder later submitted a comment in intervention
explaining his side. Whoever is telling the truth,
the fact remains that multi-million peso
contracts involving the operations of
sequestered companies should be entered into
under the supervision of a court, not freely
executed by the PCGG even when the
petitioner-owners question the propriety and
integrity of those transactions.
(4) The PCGG replaced eight out of eleven
members of the BASECO board of directors
with its own men. Upon taking over full control
of the corporation, the newly installed board
reversed the efforts of the former owners to
protect their interests. The new board fired the
BASECO lawyers who instituted the instant
petition. It then filed a motion to withdraw this
very same petition we are now deciding. In
other words, the "new owners" did not want the
Supreme Court to continue poking into the
legality of their acts. They moved to abort the
petition filed with us.
Any suspicion of impropriety would have been
avoided if the PCGG had filed the required court
proceedings and exercised its acts of
management and control under court
supervision. The requirements of due process
would have been met.
One other matter I wish to discuss in this
separate opinion is PCGG's selection of eight
out of the eleven members of the BASECO
board of directors.
The election of the members of a board of
directors is distinctly and unqualifiedly an act of
ownership. When stockholders of a corporation
elect or remove members of a board of
directors, they exercise their right of ownership
in the company they own, By no stretch of the
imagination can the revamp of a board of
directors be considered as a mere act of
conserving assets or preventing the dissipation
of sequestered assets. The broad powers of a
sequestrator are more than enough to protect
sequestered assets. There is no need and no
legal basis to reach out further and exercise
ultimate acts of ownership.
Under the powers which PCGG has assumed
and wields, it can amend the articles and by-
laws of a sequestered corporation, decrease the
capital stock, or sell substantially all corporate
assets without any effective check from the
owners not yet divested of their titles or from a
court of justice. The PCGG is tasked to
preserve assets but when it exercises the acts
of an owner, it could also very well destroy. I
hope that the case of the Philippine Daily
Express, a major newspaper closed by the
PCGG, is an isolated example. Otherwise,
banks, merchandizing firms, investment
institutions, and other sensitive businesses will
find themselves in a similar quandary.
I join the PCGG and all right thinking Filipinos in
condemning the totalitarian acts which made
possible the accumulation of ill-gotten wealth. I,
however, dissent when authoritarian and ultra
vires methods are used to recover that stolen
wealth. One wrong cannot be corrected by the
employment of another wrong.
I, therefore, vote to grant the petition. Pending
the filing of an appropriate case in court, the
PCGG must be enjoined from exercising any
and all acts of ownership over the sequestered
firm.
Bidin and Cortes, JJ., concur and dissent.
CRUZ, J., dissenting:
My brother Narvasa has written a truly
outstanding decision that bespeaks a
penetrating and analytical mind and a masterly
grasp of the serious problem we are asked to
resolve. He deserves and I offer him my sincere
admiration.
There is no question that all lawful efforts
should be taken to recover the tremendous
wealth plundered from the people by the past
regime in the most execrable thievery
perpetrated in all history. No right-thinking
Filipino can quarrel with this necessary
objective, and on this score I am happy to
concur with the ponencia.
But for all my full agreement with the basic
thesis of the majority, I regret I find myself
unable to support its conclusions in favor Of the
respondent PCGG. My view is that these
conclusions clash with the implacable principles
of the free society. foremost among which is
due process. This demands our reverent
regard.
Due process protects the life, liberty and
property of every person, whoever he may be.
Even the most despicable criminal is entitled to
this protection. Granting this distinction to
Marcos, we are still not justified in depriving him
of this guaranty on the mere justification that he
appears to own the BASECO shares.
I am convinced and so submit that the PCGG
cannot at this time take over the BASECO
without any court order and exercise thereover
acts of ownership without court supervision.
Voting the shares is an act of ownership.
Reorganizing the board of directors is an act of
ownership. Such acts are clearly unauthorized.
As the majority opinion itself stresses, the
PCGG is merely an administrator whose
authority is limited to preventing the
sequestered properties from being dissipated or
clandestinely transferred.
The court action prescribed in the Constitution
is not inadequate and is available to the PCGG.
The advantage of this remedy is that, unlike
the ad libitum measures now being take it
is authorized and at the same time
also limited by the fundamental law. I see no
reason why it should not now be employed by
the PCGG, to remove all doubts regarding the
legality of its acts and all suspicions concerning
its motives.

Separate Opinions
TEEHANKEE, CJ., concurring:
I fully concur with the masterly opinion of Mr.
Justice Narvasa. In the process of disposing of
the issues raised by petitioner BASECO in the
case at bar, it comprehensively discusses the
laws and principles governing the Presidential
Commission on Good Government (PCGG) and
defines the scope and extent of its powers in
the discharge of its monumental task of
recovering the "ill-gotten wealth, accumulated
by former President Ferdinand E. Marcos, his
immediate family, relatives, subordinates and
close associates, whether located in the
Philippines or abroad (and) business
enterprises and entities owned or controlled by
them during I . . .(the Marcos) administration,
directly or through nominees, by taking undue
advantage of their public office and/or using
their powers, authority, influence, connections
or relationship." 1
The Court is unanimous insofar as the judgment
at bar upholds the imperative need of
recovering the ill-gotten properties amassed by
the previous regime, which "deserves the fullest
support of the judiciary and all sectors of
society." 2 To quote the pungent language of
Mr. Justice Cruz, "(T)here is no question that all
lawful efforts should be taken to recover the
tremendous wealth plundered from the people
by the past regime in the most execrable
thievery perpetrated in all history. No right-
thinking Filipino can quarrel with this necessary
objective, and on this score I am happy to
concur with the ponencia." 3
The Court is likewise unanimous in its judgment
dismissing the petition to declare
unconstitutional and void Executive Orders Nos.
1 and 2 to annul the sequestration order of April
14, 1986. For indeed, the 1987 Constitution
overwhelmingly adopted by the people at the
February 2, 1987 plebiscite expressly
recognized in Article XVIII, section 26
thereof 4 the vital functions of respondent
PCGG to achieve the mandate of the people to
recover such ill-gotten wealth and properties as
ordained by Proclamation No. 3 promulgated on
March 25, 1986.
The Court is likewise unanimous as to the
general rule set forth in the main opinion that
"the PCGG cannot exercise acts of dominion
over property sequestered, frozen or
provisionally taken over" and "(T)he PCGG may
thus exercise only powers of administration over
the property or business sequestered or
provisionally taken over, much like a court-
appointed receiver, such as to bring and defend
actions in its own name; receive rents; collect
debts due; pay outstanding debts; and generally
do such other acts and things as may be
necessary to fulfill its mission as conservator
and administrator. In this context, it may in
addition enjoin or restrain any actual or
threatened commission of acts by any person or
entity that may render moot and academic, or
frustrate or otherwise make ineffectual its efforts
to carry out its task; punish for direct or indirect
contempt in accordance with the Rules of Court;
and seek and secure the assistance of any
office, agency or instrumentality of the
government. In the case of sequestered
businesses generally (i.e. going concerns,
business in current operation), as in the case of
sequestered objects, its essential role, as
already discussed, is that of conservator,
caretaker, 'watchdog' or overseer. It is not that
of manager, or innovator, much less an
owner." 5
Now, the case at bar involves one where the
third and most encompassing and rarely
invoked of provisional remedies, 6 the
provisional takeover of the Baseco properties
and business operations has been availed of by
the PCGG, simply because the evidence on
hand, not only prima facie but convincingly with
substantial and documentary evidence of record
establishes that the corporation known as
petitioner BASECO "was owned or controlled by
President Marcos 'during his administration,
through nominees, by taking undue advantage
of his public office and/or using his powers,
authority, or influence;' and that it was by and
through the same means, that BASECO had
taken over the business and/or assets of the
[government-owned] National Shipyard and
Engineering Co., Inc., and other government-
owned or controlled entities." The documentary
evidence shows that petitioner BASECO (read
Ferdinand E. Marcos) in successive
transactions all directed and approved by the
former President-in an orgy of what according to
the PCGG's then chairman, Jovito Salonga, in
his statement before the 1986 Constitutional
Commission, "Mr. Ople once called 'organized
pillage' "-gobbled up the government
corporation National Shipyard & Steel
Corporation NASSCO its shipyard at Mariveles,
300 hectares of land in Mariveles from the
Export Processing Zone Authority, Engineer
Island itself in Manila and its complex of
equipment and facilities including structures,
buildings, shops, quarters, houses, plants and
expendable or semi-expendable assets and
obtained huge loans of $19,000,000.00 from the
last available Japanese war damage fund,
P30,000,000.00 from the NDC and
P12,400,000.00 from the GSIS. The sordid
details are set forth in detail in Paragraphs 1 1
to 20 of the main opinion. They include
confidential reports from then BASECO
president Hilario M. Ruiz and the deposed
President's brother-in- law, then Captain (later
Commodore) Alfredo Romualdez, who although
not on record as an officer or stockholder of
BASECO reported directly to the deposed
President on its affairs and made the
recommendations, all approved by the latter, for
the gobbling up by BASECO of all the choice
government assets and properties.
All this evidence has been placed of record in
the case at bar. And petitioner has had all the
time and opportunity to refute it, submittals to
the contrary notwithstanding, but has dismally
failed to do so. To cite one glaring instance: as
stated in the main opinion, the evidence
submitted to this Court by the Solicitor General
"proves that President Marcos not only
exercised control over BASECO, but also that
he actually owns well nigh one hundred percent
of its outstanding stock." It cites the fact that
three corporations, evidently front or dummy
corporations, among twenty shareholders, in
name, of BASECO, namely Metro Bay Drydock,
Fidelity Management, Inc. and Trident
Management hold 209,664 shares or 95.82%,
of BASECO's outstanding stock. Now, the
Solicitor General points out further than
BASECO certificates "corresponding to more
than ninety-five percent (95%) of all the
outstanding shares of stock of BASECO,
endorsed in blank, together with deeds of
assignment of practically all the outstanding
shares of stock of the three (3) corporations
above mentioned (which hold 95.82% of all
BASECO stock), signed by the owners thereof
although not notarized" 7 were found in
Malacañang shortly after the deposed
President's sudden flight from the country on
the night of February 25, 1986. Thus, the main
opinion's unavoidable conclusion that "(W)hile
the petitioner's counsel was quick to dispute this
asserted fact, assuring this Court that the
BASECO stockholders were still in possession
of their respective stock certificates and had
'never endorsed * * * them in blank or to anyone
else,' that denial is exposed by his own prior
and subsequent recorded statements as a mere
gesture of defiance rattler than a verifiable
factual declaration . . . . Under the
circumstances, the Court can only conclude that
he could not get the originals from the
stockholders for the simple reason that as the
Solicitor General maintains, said stockholders in
truth no longer have them in their possession,
these having already been assigned in blank to
President Marcos."8
With this strong unrebutted evidence of record
in this Court, Justice Melencio-Herrera, joined
by Justice Feliciano, expressly concurs with the
main opinion upholding the commission's take-
over, stating that "(I) have no objection to
according the right to vote sequestered stock in
case of a takeover of business actually
belonging to the government or whose
capitalization comes from public funds but
which, somehow, landed in the hands of private
persons, as in the case of BASECO." They
merely qualify their concurrence with the
injunction that such takeovers be exercised with
"caution and prudence" pending the
determination of "the true and real ownership"
of the sequestered shares. Suffice it to say in
this regard that each case has to be judged
from the pertinent facts and circumstances and
that the main opinion emphasizes sufficiently
that it is only in the special instances specified
in the governing laws grounded on the superior
national interest and welfare and the practical
necessity of preserving the property and
preventing its loss or disposition that the
provisional remedy of provisional take-over is
exercised.
Here, according to the dissenting opinion, "the
PCGG concludes that sequestered property is
ill-gotten wealth and proceeds to exercise acts
of ownership over said properties . . . . and adds
that "the fact of ownership must be established
in a proper suit before a court of justice"-which
this Court has preempted with its finding that "in
the context of the proceedings at bar, the
actuality of the control by President Marcos of
BASECO has been sufficiently shown."
But BASECO who has instituted this action to
set aside the sequestration and take-over
orders of respondent commission has chosen to
raise these very issues in this Court. We cannot
ostrich-like hide our head in the sand and say
that it has not yet been established in the proper
court that what the PCGG has taken over here
are government properties, as a matter of
record and public notice and knowledge, like the
NASSCO, its Engineer Island and Mariveles
Shipyard and entire complex, which have been
pillaged and placed in the name of the dummy
or front company named BASECO but from all
the documentary evidence of record shown by
its street certificates all found in Malacanang
should in reality read "Ferdinand E. Marcos"
and/or his brother-in-law. Such take-over can in
no way be termed "lawless usurpation," for the
government does not commit any act of
usurpation in taking over its own properties that
have been channeled to dummies, who are
called upon to prove in the proper court action
what they have failed to do in this Court, that
they have lawfully acquired ownership of said
properties, contrary to the documentary
evidence of record, which they must likewise
explain away. This Court, in the exercise of its
jurisdiction on certiorari and as the guardian of
the Constitution and protector of the people's
basic constitutional rights, has entertained many
petitions on the part of parties claiming to be
adversely affected by sequestration and other
orders of the PCGG, This Court set the criterion
that such orders should issue only upon
showing of a prima facie case, which criterion
was adopted in the 1987 Constitution. The
Court's judgment cannot be faulted if much
more than a prima facie has been shown in this
case, which the faceless figures claiming to
represent BASECO have failed to refute or
disprove despite all the opportunity to do so.
The record plainly shows that petitioner
BASECO which is but a mere shell to mask its
real owner did not and could not explain how
and why they received such favored and
preferred treatment with tailored Letters of
Instruction and handwritten personal approval of
the deposed President that handed it on a silver
platter the whole complex and properties of
NASSCO and Engineer Island and the
Mariveles Shipyard.
It certainly would be the height of absurdity and
helplessness if this government could not here
and now take over the possession and custody
of its very own properties and assets that had
been stolen from it and which it had pledged to
recover for the benefit and in the greater
interest of the Filipino people, whom the past
regime had saddled with a huge $27-billion
foreign debt that has since ballooned to $28.5-
billion.
Thus, the main opinion correctly concludes that
"(I)n the light of the affirmative showing by the
Government that, prima facie at least, the
stockholders and directors of BASECO as of
April, 1986 were mere 'dummies,' nominees
or alter egos of President Marcos; at any rate,
that they are no longer owners of any shares of
stock in the corporation, the conclusion cannot
be avoided that said stockholders and directors
have no basis and no standing whatever to
cause the filing and prosecution of the instant
proceeding; and to grant relief to BASECO, as
prayed for in the petition, would in effect be to
restore the assets, properties and business
sequestered and taken over by the PCGG to
persons who are 'dummies' nominees or alter
egos of the former President." 9
And Justice Padilla in his separate concurrence
"called a spade a spade," citing the street
certificates representing 95 % of BASECO's
outstanding stock found in Malacañang after Mr.
Marcos' hasty flight in February, 1986 and the
extent of the control he exercised over policy
decisions affecting BASECO and concluding
that "Consequently, even ahead of judicial
proceedings, I am convinced that the Republic
of the Philippines, thru the PCGG, has the right
and even the duty to take over full control and
supervision of BASECO."
Indeed, the provisional remedies available to
respondent commission are rooted in the police
power of the State, the most pervasive and the
least limitable of the powers of Government
since it represents "the power of sovereignty,
the power to govern men and things within the
limits of its domain." 10 Police power has been
defined as the power inherent in the State "to
prescribe regulations to promote the health,
morals, education, good order or safety, and
general welfare of the people." 11 Police power
rests upon public necessity and upon the right
of the State and of the public to self-
protection. 12 "Salus populi suprema est lex" or
"the welfare of the people is the Supreme
Law." 13 For this reason, it is co-extensive with
the necessities of the case and the safeguards
of public interest. 14 Its scope expands and
contracts with changing needs. 15 "It may be
said in a general way that the police power
extends to all the great public needs. It may be
put forth in aid of what is sanctioned by usage,
or held by the prevailing morality or strong and
preponderant opinion to be greatly and
immediately necessary to the public
welfare." 16 That the public interest or the
general welfare is subserved by sequestering
the purported ill-gotten assets and properties
and taking over stolen properties of the
government channeled to dummy or front
companies is stating the obvious. The recovery
of these ill-gotten assets and properties would
greatly aid our financially crippled government
and hasten our national economic recovery, not
to mention the fact that they rightfully belong to
the people. While as a measure of self-
protection, if, in the interest of general welfare,
police power may be exercised to protect
citizens and their businesses in financial and
economic matters, it may similarly be exercised
to protect the government itself against potential
financial loss and the possible disruption of
governmental functions. 17 Police power as the
power of self-protection on the part of the
community bears the same relation to the
community that the principle of self-defense
bears to the individual. 18 Truly, it may be said
that even more than self- defense, the recovery
of ill-gotten wealth and of the government's own
properties involves the material and moral
survival of the nation, marked as the past
regime was by the obliteration of any line
between private funds and the public treasury
and abuse of unlimited power and elimination of
any accountability in public office, as the
evidence of record amply shows.
It should be mentioned that the tracking down of
the deposed President's actual ownership of the
BASECO shares was fortuitously facilitated by
the recovery of the street certificates in
Malacañang after his hasty flight from the
country last year. This is not generally the case.
For example, in the ongoing case filed by the
government to recover from the Marcoses
valuable real estate holdings in New York and
the Lindenmere estate in Long Island, former
PCGG chairman Jovito Salonga has revealed
that their names "do not appear on any title to
the property. Every building in New York is titled
in the name of a Netherlands Antilles
corporation, which in turn is purportedly owned
by three Panamanian corporations, with bearer
shares. This means that the shares of this
corporation can change hands any time, since
they can be transferred, under the law of
Panama, without previous registration on the
books of the corporation. One of the first
documents that we discovered shortly after the
February revolution was a declaration of trust
handwritten by Mr. Joseph Bernstein on April 4,
1982 on a Manila Peninsula Hotel stationery
stating that he would act as a trustee for the
benefit of President Ferdinand Marcos and
would act solely pursuant to the instructions of
Marcos with respect to the Crown Building in
New York." 19
This is just to stress the difficulties of the tasks
confronting respondent PCGG, which
nevertheless has so far commendably produced
unprecedented positive results. As stated by
then chairman Salonga:
PCGG has turned over to the
Office of the President around
2 billion pesos in cash, free of
any lien. It has also delivered
to the President-as a result of
a compromise settlement-
around 200 land titles
involving vast tracks of land in
Metro Manila, Rizal, Laguna,
Cavite, and Bataan, worth
several billion pesos. These
lands are now available for
low-cost housing projects for
the benefit of the poor and the
dispossessed amongst our
people.
In the legal custody of the
Commission as a result of
sequestration proceedings,
are expensive jewelry
amounting to 310 million
pesos, 42 aircraft amounting
to 718 million pesos, vessels
amounting to 748 million
pesos, and shares of stock
amounting to around 215
million pesos.
But, as I said, the bulk of the
ill-gotten wealth is located
abroad, not in the Philippines.
Through the efforts of the
PCGG, we have caused the
freezing or sequestration of
properties, deposits, and
securities probably worth
many billions of pesos in New
York, New Jersey, Hawaii,
California, and more
importantly-in Switzerland.
Due to favorable
developments in Switzerland,
we may expect, according to
our Swiss lawyers, the first
deliveries of the Swiss
deposits in the foreseeable
future, perhaps in less than a
year's time. In New York,
PCGG through its lawyers
who render their services free
of cost to the Philippine
government, succeeded in
getting injunctive relief
against Mr. and Mrs. Marcos
and their nominees and
agents. There is now an offer
for settlement that is being
studied and explored by our
lawyers there.
If we succeed in recovering
not an (since this is
impossible) but a substantial
part of the ill-gotten wealth
here and in various countries
of the world-something the
revolutionary governments of
China, Ethiopia, Iran and
Nicaragua were not able to
accomplish at all with respect
to properties outside their
territorial boundaries-the
Presidential Commission on
Good Government, which has
undertaken the difficult and
thankless task of trying to
undo what had been done so
secretly and effectively in the
last twenty years, shall have
more than justified its
existence. 20
The misdeeds of some PCGG volunteers and
personnel cited in the dissenting opinion do not
detract at an from the PCGG's
accomplishments, just as no one would do
away with newspapers because of some
undesirable elements. The point is that all such
misdeeds have been subject to public exposure
and as stated in the dissent itself, the erring
PCGG representatives have been forthwith
dismissed and replaced.
The magnitude of the tasks that confront
respondent PCGG with its limited resources and
staff support and volunteers should be
appreciated, together with the assistance that
foreign governments and lawyers have
spontaneously given the commission.
A word about the PCGG's firing of the BASECO
lawyers who filed the present petition
challenging its questioned orders, filing a motion
to withdraw the petition, after it had put in eight
of its representatives as directors of the
BASECO board of directors. This was entirely
proper and in accordance with the Court's
Resolution of October 28, 1986, which denied
BASECO's motion for the issuance of a
restraining order against such take-over and
declared that "the government can, through its
designated directors, properly exercise control
and management over what appear to
be properties and assets owned and belonging
to the government itself and over which the
persons who appear in this case on behalf of
BASECO have failed to show any eight or even
any shareholding in said corporation." In other
words, these dummies or fronts cannot seek to
question the government's right to recover the
very properties and assets that have been
stolen from it by using the very same stolen
properties and funds derived therefrom. If they
wish to pursue their own empty claim, they must
do it on their own, after first establishing that
they indeed have a lawful right and/or
shareholding in BASECO.
Under the 1987 Constitution, the PCGG is
called upon to file the judicial proceedings for
forfeiture and recovery of the sequestered or
frozen properties covered by its orders issued
before the ratification of the Constitution on
February 2, 1987, within six months from such
ratification, or by August 2, 1987. (For those
orders issued after such ratification, the judicial
action or proceeding must be commenced
within six months from the issuance thereof.)
The PCGG has not really been given much
time, considering the magnitude of its tasks. It is
entitled to some forbearance, in availing of the
maximum time granted it for the filing of the
corresponding judicial action with the
Sandiganbayan.
PADILLA, J., concurring:
The majority opinion penned by Mr. Justice
Narvasa maintains and upholds the valid
distinction between acts of conservation and
preservation of assets and acts of ownership.
Sequestration, freeze and temporary take-over
encompass the first type of acts. They do not
include the second type of acts which are
reserved only to the rightful owner of the assets
or business sequestered or temporarily taken
over.
The removal and election of members of the
board of directors of a corporate enterprise is, to
me, a clear act of ownership on the part of the
shareholders of the corporation. Under ordinary
circumstances, I would deny the PCGG the
authority to change and elect the members of
BASECO's Board of Directors. However, under
the facts as disclosed by the records, it appears
that the certificates of stock representing about
ninety-five (95%) per cent of the total ownership
in BASECO's capital stock were found endorsed
in blank in Malacanang (presumably in the
possession and control of Mr. Marcos) at the
time he and his family fled in February 1986.
This circumstance let alone the extent of the
control Mr. Marcos exercised, while in power,
over policy decisions affecting BASECO,
entirely satisfies my mind that BASECO was
owned and controlled by Mr. Marcos. This is
calling a spade a spade. I am also entirely
satisfied in my mind that Mr. Marcos could not
have acquired the ownership of BASECO out of
his lawfully-gotten wealth.
Consequently, even ahead of judicial
proceedings, I am convinced that the Republic
of the Philippines, through the PCGG, has the
right and even the duty to take-over full control
and supervision of BASECO.
MELENCIO-HERRERA, J., concurring:
I would like to qualify my concurrence in so far
as the voting of sequestered stork is concerned.
The voting of sequestered stock is, to my mind,
an exercise of an attribute of ownership. It goes
beyond the purpose of a writ of sequestration,
which is essentially to preserve the property in
litigation (Article 2005, Civil Code).
Sequestration is in the nature of a judicial
deposit (ibid.).
I have no objection to according the right to vote
sequestered stock in case of a take-over of
business actually belonging to the government
or whose capitalization comes from public funds
but which, somehow, landed in the hands of
private persons, as in the case of BASECO. To
my mind, however, caution and prudence
should be exercised in the case of sequestered
shares of an on-going private business
enterprise, specially the sensitive ones, since
the true and real ownership of said shares is yet
to be determined and proven more conclusively
by the Courts.
It would be more in keeping with legal norms if
forfeiture proceedings provided for under
Republic Act No. 1379 be filed in Court and the
PCGG seek judicial appointment as a receiver
or administrator, in which case, it would be
empowered to vote sequestered shares under
its custody (Section 55, Corporation Code).
Thereby, the assets in litigation are brought
within the Court's jurisdiction and the presence
of an impartial Judge, as a requisite of due
process, is assured. For, even in its historical
context, sequestration is a judicial matter that is
best handled by the Courts.
I consider it imperative that sequestration
measures be buttressed by judicial proceedings
the soonest possible in order to settle the matter
of ownership of sequestered shares and to
determine whether or not they are legally owned
by the stockholders of record or are "ill-gotten
wealth" subject to forfeiture in favor of the State.
Sequestration alone, being actually an ancillary
remedy to a principal action, should not be
made the basis for the exercise of acts of
dominion for an indefinite period of time.
Sequestration is an extraordinary, harsh, and
severe remedy. It should be confined to its
lawful parameters and exercised, with due
regard, in the words of its enabling laws, to the
requirements of fairness, due process
(Executive Order No. 14, palay 7, 1986), and
Justice (Executive Order No. 2, March 12,
1986).
Feliciano, J., concur.
GUTIERREZ, JR., J., concurring and
dissenting:
I concur, in part, in the erudite opinion penned
for the Court by my distinguished colleague Mr.
Justice Andres R. Narvasa. I agree insofar as it
states the principles which must govern PCGG
sequestrations and emphasizes the limitations
in the exercise of its broad grant of powers.
I concur in the general propositions embodied in
or implied from the majority opinion, among
them:
(1) The efforts of Government to recover ill-
gotten properties amassed by the previous
regime deserve the fullest support of the
judiciary and all sectors of society. I believe,
however, that a nation professing adherence to
the rule of law and fealty to democratic
processes must adopt ways and means which
are always within the bounds of lawfully granted
authority and which meet the tests of due
process and other Bill of Rights protections.
(2) Sequestration is intended to prevent the
destruction, concealment, or dissipation of ill-
gotten wealth. The object is conservation and
preservation. Any exercise of power beyond
these objectives is lawless usurpation.
(3) The PCGG exercises only such powers as
are granted by law and not proscribed by the
Constitution. The remedies it enforces are
provisional and contingent. Whether or not
sequestered property is indeed ill-gotten must
be-determined by a court of justice. The PCGG
has absolutely no power to divest title over
sequestered property or to act as if its findings
are final.
(4) The PCGG does not own sequestered
property. It cannot and must not exercise acts of
ownership. To quote the majority opinion, "one
thing is certain ..., the PCGG cannot exercise
acts of dominion."
(5) The provisional takeover in a sequestration
should not be indefinitely maintained. It is the
duty of the PCGG to immediately file
appropriate criminal or civil cases once the
evidence has been gathered.
It is the difference between what the Court says
and what the PCGG does which constrains me
to dissent. Even as the Court emphasizes
principles of due process and fair play, it has
unfortunately validated ultra vires acts violative
of those very same principles. While we stress
the rules which must govern the PCGG in the
exercise of its powers, the Court has failed to
stop or check acts which go beyond the power
of sequestration given by law to the PCGG.
We are all agreed in the Court that the PCGG is
not a judge. It is an investigator and prosecutor.
Sequestration is only a preliminary or ancillary
remedy. There must be a principal and
independent suit filed in court to establish the
true ownership of sequestered properties. The
factual premise that a sequestered property was
ill-gotten by former President Marcos, his family,
relatives, subordinates, and close
associates cannot be assumed. The fact of
ownership must be established in a proper suit
before a court of justice.
But what has the Court, in effect, ruled?
Pages 21 to 33 of the majority opinion are
dedicated to a statement of facts
which conclusively and indubitably shows that
BASECO is owned by President Marcos-and
that it was acquired and vastly enlarged by the
former President's taking undue advantage of
his public office and using his powers, authority,
or influence.
There has been no court hearing, no trial, and
no presentation of evidence. All that we have is
what the PCGG has given us. The petitioner
has not even been allowed to see the evidence,
much less refute it.
What the PCGG has gathered in the course of
its seizures and investigations may be gospel
truth. However, that truth must be properly
established in a trial court, not unilaterally
determined by the PCGG or declared by this
Court in a special proceeding which only asks
us to set aside or enjoin an illegal exercise of
power. After this decision, there is nothing more
for a trial court to ascertain. Certainly, no lower
court would dare to arrive at findings contrary to
this Court's conclusions, no matter how insistent
we may be in labelling such conclusions
as "prima facie." To me, this is the basic flaw in
PCGG procedures that the Court is, today,
unwittingly legitimating. Even before the
institution of a court case, the PCGG concludes
that sequestered property is ill-gotten wealth
and proceeds to exercise acts of ownership
over said properties. It treats sequestered
property as its own even before the oppositor-
owners have been divested of their titles.
The Court declares that a state of seizure is not
to be indefinitely maintained. This means that
court proceedings to either forfeit the
sequestered properties or clear the names and
titles of the petitioners must be filed as soon as
possible.
This case is a good example of disregard or
avoidance of this requirement. With the kind of
evidence which the PCGG professes to
possess, the forfeiture case could have been
filed simultaneously with the issuance of
sequestration orders or shortly thereafter.
And yet, the records show that the PCGG
appears to concentrate more on the means
rather than the ends, in running the BASECO,
taking over the board of directors and
management, getting rid of security guards,
disposing of scrap, entering into new contracts
and otherwise behaving as if it were already the
owner. At this late date and with all the
evidence PCGG claims to have, no court case
has been filed.
Among the interesting items elicited during the
oral arguments or found in the records of this
petition are:
(1) Upon sequestering BASECO, some PCGG
personnel lost no time in digging up paved
premises with jack hammers in a frantic search
for buried gold bars.
(2) Two top PCGG volunteers charged each
other with stealing properties under their
custody. The PCGG had to step in, dismiss the
erring representatives, and replace them with
new ones.
(3) The petitioner claims that the lower bid of a
rock quarry operator was accepted even as a
higher and more favorable bid was offered.
When the questionable deal was brought to our
attention, the awardee allegedly raised his bid
to the level of the better offer. The successful
bidder later submitted a comment in intervention
explaining his side. Whoever is telling the truth,
the fact remains that multi-million peso
contracts involving the operations of
sequestered companies should be entered into
under the supervision of a court, not freely
executed by the PCGG even when the
petitioner-owners question the propriety and
integrity of those transactions.
(4) The PCGG replaced eight out of eleven
members of the BASECO board of directors
with its own men. Upon taking over full control
of the corporation, the newly installed board
reversed the efforts of the former owners to
protect their interests. The new board fired the
BASECO lawyers who instituted the instant
petition. It then filed a motion to withdraw this
very same petition we are now deciding. In
other words, the "new owners" did not want the
Supreme Court to continue poking into the
legality of their acts. They moved to abort the
petition filed with us.
Any suspicion of impropriety would have been
avoided if the PCGG had filed the required court
proceedings and exercised its acts of
management and control under court
supervision. The requirements of due process
would have been met.
One other matter I wish to discuss in this
separate opinion is PCGG's selection of eight
out of the eleven members of the BASECO
board of directors.
The election of the members of a board of
directors is distinctly and unqualifiedly an act of
ownership. When stockholders of a corporation
elect or remove members of a board of
directors, they exercise their right of ownership
in the company they own, By no stretch of the
imagination can the revamp of a board of
directors be considered as a mere act of
conserving assets or preventing the dissipation
of sequestered assets. The broad powers of a
sequestrator are more than enough to protect
sequestered assets. There is no need and no
legal basis to reach out further and exercise
ultimate acts of ownership.
Under the powers which PCGG has assumed
and wields, it can amend the articles and by-
laws of a sequestered corporation, decrease the
capital stock, or sell substantially all corporate
assets without any effective check from the
owners not yet divested of their titles or from a
court of justice. The PCGG is tasked to
preserve assets but when it exercises the acts
of an owner, it could also very well destroy. I
hope that the case of the Philippine Daily
Express, a major newspaper closed by the
PCGG, is an isolated example. Otherwise,
banks, merchandizing firms, investment
institutions, and other sensitive businesses will
find themselves in a similar quandary.
I join the PCGG and all right thinking Filipinos in
condemning the totalitarian acts which made
possible the accumulation of ill-gotten wealth. I,
however, dissent when authoritarian and ultra
vires methods are used to recover that stolen
wealth. One wrong cannot be corrected by the
employment of another wrong.
I, therefore, vote to grant the petition. Pending
the filing of an appropriate case in court, the
PCGG must be enjoined from exercising any
and all acts of ownership over the sequestered
firm.
Bidin and Cortes, JJ., concur and dissent.
CRUZ, J., dissenting:
My brother Narvasa has written a truly
outstanding decision that bespeaks a
penetrating and analytical mind and a masterly
grasp of the serious problem we are asked to
resolve. He deserves and I offer him my sincere
admiration.
There is no question that all lawful efforts
should be taken to recover the tremendous
wealth plundered from the people by the past
regime in the most execrable thievery
perpetrated in all history. No right-thinking
Filipino can quarrel with this necessary
objective, and on this score I am happy to
concur with the ponencia.
acts of ownership without court supervision.
Voting the shares is an act of ownership.
Reorganizing the board of directors is an act of
ownership. Such acts are clearly unauthorized.
As the majority opinion itself stresses, the
PCGG is merely an administrator whose
authority is limited to preventing the
sequestered properties from being dissipated or
clandestinely transferred.
The court action prescribed in the Constitution
is not inadequate and is available to the PCGG.
The advantage of this remedy is that, unlike
the ad libitum measures now being take it
is authorized and at the same time
also limited by the fundamental law. I see no
reason why it should not now be employed by
the PCGG, to remove all doubts regarding the
legality of its acts and all suspicions concerning
its motives.

But for all my full agreement with the basic

thesis of the majority, I regret I find myself
unable to support its conclusions in favor Of the
respondent PCGG. My view is that these
conclusions clash with the implacable principles
of the free society. foremost among which is
due process. This demands our reverent
regard.

Due process protects the life, liberty and

property of every person, whoever he may be.
Even the most despicable criminal is entitled to
this protection. Granting this distinction to
Marcos, we are still not justified in depriving him
of this guaranty on the mere justification that he
appears to own the BASECO shares.

I am convinced and so submit that the PCGG

cannot at this time take over the BASECO
without any court order and exercise thereover
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-27155 May 18, 1978
PHILIPPINE NATIONAL BANK, petitioner,
vs.
THE COURT OF APPEALS, RITA GUECO
TAPNIO, CECILIO GUECO and THE
PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY, INC., respondents.
Medina, Locsin, Coruña, & Sumbillo for
petitioner.
Manuel Lim & Associates for private
respondents.
ANTONIO, J.:
Certiorari to review the decision of the Court of
Appeals which affirmed the judgment of the
Court of First Instance of Manila in Civil Case
No. 34185, ordering petitioner, as third-party
defendant, to pay respondent Rita Gueco
Tapnio, as third-party plaintiff, the sum of
P2,379.71, plus 12% interest per annum from
September 19, 1957 until the same is fully paid,
P200.00 attorney's fees and costs, the same
amounts which Rita Gueco Tapnio was ordered
to pay the Philippine American General
Insurance Co., Inc., to be paid directly to the
Philippine American General Insurance Co., Inc.
in full satisfaction of the judgment rendered
against Rita Gueco Tapnio in favor of the
former; plus P500.00 attorney's fees for Rita
Gueco Tapnio and costs. The basic action is the
complaint filed by Philamgen (Philippine
American General Insurance Co., Inc.) as
surety against Rita Gueco Tapnio and Cecilio
Gueco, for the recovery of the sum of P2,379.71
paid by Philamgen to the Philippine National
Bank on behalf of respondents Tapnio and
Gueco, pursuant to an indemnity agreement.
Petitioner Bank was made third-party defendant
by Tapnio and Gueco on the theory that their
failure to pay the debt was due to the fault or
negligence of petitioner.
The facts as found by the respondent Court of
Appeals, in affirming the decision of the Court of
First Instance of Manila, are quoted hereunder:
Plaintiff executed its Bond,
Exh. A, with defendant Rita
Gueco Tapnio as principal, in
favor of the Philippine
National Bank Branch at San
Fernando, Pampanga, to
guarantee the payment of
defendant Rita Gueco
Tapnio's account with said
Bank. In turn, to guarantee
the payment of whatever
amount the bonding company
would pay to the Philippine
National Bank, both
defendants executed the
indemnity agreement, Exh. B.
Under the terms and
conditions of this indemnity
agreement, whatever amount
the plaintiff would pay would
earn interest at the rate of
12% per annum, plus
attorney's fees in the amount
of 15 % of the whole amount
due in case of court litigation.
The original amount of the
bond was for P4,000.00; but
the amount was later reduced
to P2,000.00.
It is not disputed that
defendant Rita Gueco Tapnio
was indebted to the bank in
the sum of P2,000.00, plus
accumulated interests unpaid,
which she failed to pay
despite demands. The Bank
wrote a letter of demand to
plaintiff, as per Exh. C;
whereupon, plaintiff paid the
bank on September 18, 1957,
the full amount due and owing
in the sum of P2,379.91, for
and on account of defendant
Rita Gueco's obligation (Exhs.
D and D-1).
Plaintiff, in turn, made several
demands, both verbal and
written, upon defendants
(Exhs. E and F), but to no
avail.
Defendant Rita Gueco Tapnio
admitted all the foregoing
facts. She claims, however,
when demand was made
upon her by plaintiff for her to
pay her debt to the Bank, that
she told the Plaintiff that she
did not consider herself to be
indebted to the Bank at all
because she had an
agreement with one Jacobo-
Nazon whereby she had
leased to the latter her
unused export sugar quota for
the 1956-1957 agricultural
year, consisting of 1,000
piculs at the rate of P2.80 per
picul, or for a total of
P2,800.00, which was already 1957 which on her
in excess of her obligation she did not standing
guaranteed by plaintiff's bond, need. She crop
Exh. A. This lease agreed to including
agreement, according to her, allow Mr. her sugar
was with the knowledge of the Jacobo C. quota
bank. But the Bank has Tuazon to allocation
placed obstacles to the use said for the
consummation of the lease, quota for agricultural
and the delay caused by said the year
obstacles forced 'Nazon to considerati correspondi
rescind the lease contract. on of ng to said
Thus, Rita Gueco Tapnio filed P2,500.00 standing
her third-party complaint (Exh. "4"- crop. This
against the Bank to recover Gueco). arrangeme
from the latter any and all This nt was
sums of money which may be agreement necessary
adjudged against her and in was called in order that
favor of the plaitiff plus moral a contract when Mrs.
damages, attorney's fees and of lease of Tapnio
costs. sugar harvests,
allotment. the P.N.B.,
Insofar as the contentions of having a
the parties herein are At the time lien on the
concerned, we quote with of the crop, may
approval the following agreement, effectively
findings of the lower court Mrs. Tapnio enforce
based on the evidence was collection
presented at the trial of the indebted to against her.
case: the Her sugar
Philippine cannot be
National exported
It has been without
established Bank at
San sugar quota
during the allotment
trial that Fernando,
Pampanga. Sometimes,
Mrs. Tapnio however, a
had an Her
indebtedne planter
export harvest less
sugar quota ss was
known as a sugar than
of 1,000 her quota,
piculs for crop loan
and was so her
the excess
agricultural secured by
a mortgage quota is
year 1956- utilized by
another on of P2.80 was kept in
who pays per picul or the bank.
her for its a total of
use. This is P2,800.00 Explaining
the (Exh. "2- the
arrangeme Gueco") meaning of
nt entered informing Tuazon's
into them that statement
between "the as to the
Mrs. Tapnio minimum funds, it
and Mr. lease rental was stated
Tuazon acceptable by him that
regarding to the Bank, he had an
the former's is P2.80 per approved
excess picul." In a loan from
quota for letter the bank
1956-1957 addressed but he had
(Exh. "4"- to the not yet
Gueco). branch utilized it as
manager on he was
Since the August 10, intending to
quota was 1956, Mr. use it to
mortgaged Tuazon pay for the
to the informed quota.
P.N.B., the the Hence,
contract of manager when he
lease had that he was said the
to be agreeable amount
approved to raising needed to
by said the pay Mrs.
Bank, The considerati Tapnio was
same was on to P2.80 in his folder
submitted per picul. which was
to the He further in the bank,
branch informed he meant
manager at the and the
San manager manager
Fernando, that he was understood
Pampanga. ready to and knew
The latter pay said he had an
required the amount as approved
parties to the funds loan
raise the were in his available to
considerati folder which be used in
 payment of for a reconsideration thereof. Philippine National Bank, The
the quota. On November 19, 1956, the refusal on the part of the bank
In said Exh. branch manager submitted to approve the lease at the
"6-Gueco", Tuazon's request for rate of P2.80 per picul which,
Tuazon reconsideration to the board as stated above, would have
also of directors with another enabled Rita Gueco Tapnio to
informed recommendation for the realize the amount of
the approval of the lease at P2.80 P2,800.00 which was more
manager per picul, but the board than sufficient to pay off her
that he returned the recommendation indebtedness to the Bank,
would want unacted upon, considering and its insistence on the
for a notice that the current price rental price of P3.00 per picul
from the prevailing at the time was thus unnecessarily increasing
manager as P3.00 per picul (Exh. 9-Bank). the value by only a difference
to the time of P200.00. inevitably brought
when the The parties were notified of about the rescission of the
bank the refusal on the part of the lease contract to the damage
needed the board of directors of the Bank and prejudice of Rita Gueco
money so to grant the motion for Tapnio in the aforesaid sum
that Tuazon reconsideration. The matter of P2,800.00. The
could sign stood as it was until February unreasonableness of the
the 22, 1957, when Tuazon wrote position adopted by the board
correspondi a letter (Exh. 10-Bank of directors of the Philippine
ng informing the Bank that he National Bank in refusing to
promissory was no longer interested to approve the lease at the rate
note. continue the deal, referring to of P2.80 per picul and
the lease of sugar quota insisting on the rate of P3.00
Further Consideration of the allotment in favor of per picul, if only to increase
evidence discloses that when defendant Rita Gueco Tapnio. the retail value by only
the branch manager of the The result is that the latter P200.00 is shown by the fact
Philippine National Bank at lost the sum of P2,800.00 that all the accounts of Rita
San Fernando recommended which she should have Gueco Tapnio with the Bank
the approval of the contract of received from Tuazon and were secured by chattel
lease at the price of P2.80 per which she could have paid mortgage on standing crops,
picul (Exh. 1 1-Bank), whose the Bank to cancel off her assignment of leasehold
recommendation was indebtedness, rights and interests on her
concurred in by the Vice- properties, and surety bonds,
president of said Bank, J. V. aside from the fact that from
The court below held, and in Exh. 8-Bank, it appears that
Buenaventura, the board of this holding we concur that
directors required that the she was offering to execute a
failure of the negotiation for real estate mortgage in favor
amount be raised to 13.00 per the lease of the sugar quota
picul. This act of the board of of the Bank to replace the
allocation of Rita Gueco surety bond This statement is
directors was communicated Tapnio to Tuazon was due to
to Tuazon, who in turn asked further bolstered by the fact
the fault of the directors of the that Rita Gueco Tapnio
 apparently had the means to
pay her obligation fact that
she has been granted several
value of almost P80,000.00
for the agricultural years from
1952 to 56. 1
Its motion for the reconsideration of the decision
of the Court of Appeals having been denied,
petitioner filed the present petition.
The petitioner contends that the Court of
Appeals erred:
(1) In finding that the rescission of the lease
contract of the 1,000 piculs of sugar quota
allocation of respondent Rita Gueco Tapnio by
Jacobo C. Tuazon was due to the unjustified
refusal of petitioner to approve said lease
contract, and its unreasonable insistence on the
rental price of P3.00 instead of P2.80 per picul;
and
(2) In not holding that based on the statistics of
sugar price and prices of sugar quota in the
possession of the petitioner, the latter's Board of
Directors correctly fixed the rental of price per
picul of 1,000 piculs of sugar quota leased by
respondent Rita Gueco Tapnio to Jacobo C.
Tuazon at P3.00 per picul.
Petitioner argued that as an assignee of the
sugar quota of Tapnio, it has the right, both
under its own Charter and under the
Corporation Law, to safeguard and protect its
rights and interests under the deed of
assignment, which include the right to approve
or disapprove the said lease of sugar quota and
in the exercise of that authority, its
Board of Directors necessarily had authority to
determine and fix the rental price per picul of
the sugar quota subject of the lease between
private respondents and Jacobo C. Tuazon. It
argued further that both under its Charter and
the Corporation Law, petitioner, acting thru its
Board of Directors, has the perfect right to adopt
a policy with respect to fixing of rental prices of
export sugar quota allocations, and in fixing the
rentals at P3.00 per picul, it did not act
arbitrarily since the said Board was guided by
statistics of sugar price and prices of sugar
quotas prevailing at the time. Since the fixing of
the rental of the sugar quota is a function
lodged with petitioner's Board of Directors and
is a matter of policy, the respondent Court of
Appeals could not substitute its own judgment
for that of said Board of Directors, which acted
in good faith, making as its basis therefore the
prevailing market price as shown by statistics
which were then in their possession.
Finally, petitioner emphasized that under the
appealed judgment, it shall suffer a great
injustice because as a creditor, it shall be
deprived of a just claim against its debtor
(respondent Rita Gueco Tapnio) as it would be
required to return to respondent Philamgen the
sum of P2,379.71, plus interest, which amount
had been previously paid to petitioner by said
insurance company in behalf of the principal
debtor, herein respondent Rita Gueco Tapnio,
and without recourse against respondent Rita
Gueco Tapnio.
We must advert to the rule that this Court's
appellate jurisdiction in proceedings of this
nature is limited to reviewing only errors of law,
accepting as conclusive the factual fin dings of
the Court of Appeals upon its own assessment
of the evidence. 2
The contract of lease of sugar quota allotment
at P2.50 per picul between Rita Gueco Tapnio
and Jacobo C. Tuazon was executed on April
17, 1956. This contract was submitted to the
Branch Manager of the Philippine National Bank
at San Fernando, Pampanga. This arrangement
was necessary because Tapnio's indebtedness
to petitioner was secured by a mortgage on her
standing crop including her sugar quota
allocation for the agricultural year corresponding
to said standing crop. The latter required the
parties to raise the consideration to P2.80 per
picul, the minimum lease rental acceptable to
the Bank, or a total of P2,800.00. Tuazon
informed the Branch Manager, thru a letter
dated August 10, 1956, that he was agreeable
to raising the consideration to P2.80 per picul.
He further informed the manager that he was
ready to pay the said sum of P2,800.00 as the
funds were in his folder which was kept in the
said Bank. This referred to the approved loan of
Tuazon from the Bank which he intended to use
in paying for the use of the sugar quota. The
Branch Manager submitted the contract of lease
of sugar quota allocation to the Head Office on
September 7, 1956, with a recommendation for
approval, which recommendation was
concurred in by the Vice-President of the Bank,
Mr. J. V. Buenaventura. This notwithstanding,
the Board of Directors of petitioner required that
the consideration be raised to P3.00 per picul.
Tuazon, after being informed of the action of the
Board of Directors, asked for a reconsideration
thereof. On November 19, 1956, the Branch
Manager submitted the request for
reconsideration and again recommended the
approval of the lease at P2.80 per picul, but the
Board returned the recommendation unacted,
stating that the current price prevailing at that
time was P3.00 per picul.
On February 22, 1957, Tuazon wrote a letter,
informing the Bank that he was no longer
interested in continuing the lease of sugar quota
allotment. The crop year 1956-1957 ended and
Mrs. Tapnio failed to utilize her sugar quota,
resulting in her loss in the sum of P2,800.00
which she should have received had the lease
in favor of Tuazon been implemented.
It has been clearly shown that when the Branch
Manager of petitioner required the parties to
raise the consideration of the lease from P2.50
to P2.80 per picul, or a total of P2,800-00, they
readily agreed. Hence, in his letter to the
Branch Manager of the Bank on August 10,
1956, Tuazon informed him that the minimum
lease rental of P2.80 per picul was acceptable
to him and that he even offered to use the loan
secured by him from petitioner to pay in full the
sum of P2,800.00 which was the total
consideration of the lease. This arrangement
was not only satisfactory to the Branch Manager
but it was also approves by Vice-President J. V.
Buenaventura of the PNB. Under that
arrangement, Rita Gueco Tapnio could have
realized the amount of P2,800.00, which was
more than enough to pay the balance of her
indebtedness to the Bank which was secured by
the bond of Philamgen.
There is no question that Tapnio's failure to
utilize her sugar quota for the crop year 1956-
1957 was due to the disapproval of the lease by
the Board of Directors of petitioner. The issue,
therefore, is whether or not petitioner is liable
for the damage caused.
As observed by the trial court, time is of the
essence in the approval of the lease of sugar
quota allotments, since the same must be
utilized during the milling season, because any
allotment which is not filled during such milling
season may be reallocated by the Sugar Quota
Administration to other holders of
allotments. 3 There was no proof that there was
any other person at that time willing to lease the
sugar quota allotment of private respondents for
a price higher than P2.80 per picul. "The fact
that there were isolated transactions wherein
the consideration for the lease was P3.00 a
picul", according to the trial court, "does not
necessarily mean that there are always ready
takers of said price. " The unreasonableness of
the position adopted by the petitioner's Board of
Directors is shown by the fact that the difference
between the amount of P2.80 per picul offered
by Tuazon and the P3.00 per picul demanded
by the Board amounted only to a total sum of
P200.00. Considering that all the accounts of
Rita Gueco Tapnio with the Bank were secured
by chattel mortgage on standing crops,
assignment of leasehold rights and interests on
her properties, and surety bonds and that she
had apparently "the means to pay her obligation
to the Bank, as shown by the fact that she has
been granted several sugar crop loans of the
total value of almost P80,000.00 for the
agricultural years from 1952 to 1956", there was
no reasonable basis for the Board of Directors
of petitioner to have rejected the lease
agreement because of a measly sum of
P200.00.
While petitioner had the ultimate authority of
approving or disapproving the proposed lease
since the quota was mortgaged to the Bank, the
latter certainly cannot escape its responsibility
of observing, for the protection of the interest of
private respondents, that degree of care,
precaution and vigilance which the
circumstances justly demand in approving or
disapproving the lease of said sugar quota. The
law makes it imperative that every person "must
in the exercise of his rights and in the
performance of his duties, act with justice, give
everyone his due, and observe honesty and
good faith, 4 This petitioner failed to do.
Certainly, it knew that the agricultural year was
about to expire, that by its disapproval of the
lease private respondents would be unable to
utilize the sugar quota in question. In failing to
observe the reasonable degree of care and
vigilance which the surrounding circumstances
reasonably impose, petitioner is consequently
liable for the damages caused on private
respondents. Under Article 21 of the New Civil
Code, "any person who wilfully causes loss or
injury to another in a manner that is contrary to
morals, good customs or public policy shall
compensate the latter for the damage." The
afore-cited provisions on human relations were
intended to expand the concept of torts in this
jurisdiction by granting adequate legal remedy
for the untold number of moral wrongs which is
impossible for human foresight to specifically
provide in the statutes. 5
A corporation is civilly liable in the same manner
as natural persons for torts, because "generally
speaking, the rules governing the liability of a
principal or master for a tort committed by an
agent or servant are the same whether the
principal or master be a natural person or a
corporation, and whether the servant or agent
be a natural or artificial person. All of the
authorities agree that a principal or master is
liable for every tort which he expressly directs or
authorizes, and this is just as true of a
corporation as of a natural person, A
corporation is liable, therefore, whenever a
tortious act is committed by an officer or agent
under express direction or authority from the
stockholders or members acting as a body, or,
generally, from the directors as the governing
body." 6
WHEREFORE, in view of the foregoing, the
decision of the Court of Appeals is hereby
AFFIRMED.
Fernando, Aquino, Concepcion, Jr., and Santos,
JJ., concur.
 FIRST DIVISION
immunity from medical malpractice traditionally
- versus -
accorded to hospitals has to be eroded if we are to
G.R.
balance the No. 127590
interest of the patients and hospitals
PROFESSIONAL SERVICES, INC., G.R. No. 126297
under the present setting.
Petitioner,
THE COURT OF APPEALS and NATIVIDAD AGANA and Present:
ENRIQUEAGANA,
Before thisPUNO,
Respondents. Court isC.J.,
a motion for reconsideration filed
- versus -
by Professional Services, Inc. (PSI), petitioner in G.R.
SANDOVAL-GUTIERREZ,
No. 126297, assailing the Courts First Division
CORONA,
THE COURT OF APPEALS and NATIVIDAD and
ENRIQUE AGANA, Decision dated January 31, 2007, finding PSI and Dr.
AZCUNA, and
Respondents, Miguel Ampil, petitioner in G.R. No. 127590, jointly
LEONARDO-DE CASTRO, JJ.
and severally liable for medical negligence.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x
G.R. No. 126467
NATIVIDAD (Substituted by her children MARCELINO AGANA Promulgated:
III, ENRIQUE AGANA, JR., EMMA AGANA ANDAYA, JESUS
AGANA, and RAYMUND AGANA) and ENRIQUE AGANA, AFebruary
brief revisit of the antecedent facts is
11, 2008
x---------------------------------------------------------x
Petitioners, imperative.

- versus -
On April 4, 1984, Natividad Agana was admitted at

the Medical City General Hospital (Medical City)

RESOLUTION
THE COURT OF APPEALS and JUANFUENTES, because of difficulty of bowel movement and bloody

Respondents,SANDOVAL-GUTIERREZ, J.: anal discharge. Dr. Ampil diagnosed her to be

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - x suffering from cancer of the sigmoid. Thus, on April

11, 1984, Dr. Ampil, assisted by the medical

MIGUEL AMPIL,
As the hospital industry changes, so must the laws staff[1] of Medical City, performed an anterior
Petitioner,
and jurisprudence governing hospital liability. The resection surgery upon her. During the surgery, he

found that the malignancy in her sigmoid area had

spread to her left ovary, necessitating the removal of After a couple of days, Natividad complained of then assured Natividad that the pains would soon

certain portions of it.Thus, Dr. Ampil obtained the excruciating pain in her anal region. She consulted vanish.

consent of Atty. Enrique Agana, Natividads husband, both Dr. Ampil and Dr. Fuentes about it. They told

to permit Dr. Juan Fuentes, respondent in G.R. No. her that the pain was the natural consequence of the
Despite Dr. Ampils assurance, the pains intensified,
126467, to perform hysterectomy upon Natividad. surgical operation performed upon her. Dr. Ampil
prompting Natividad to seek treatment at
recommended that Natividad consult an oncologist
the Polymedic General Hospital. While confined
to treat the cancerous nodes which were not
Dr. Fuentes performed and completed the thereat, Dr. Ramon Gutierrez detected the presence
removed during the operation.
hysterectomy. Afterwards, Dr. Ampil took over, of a foreign object in her vagina -- a foul-smelling

completed the operation and closed the incision. gauze measuring 1.5 inches in width. The gauze had

However, the operation appeared to be flawed. In On May 9, 1984, Natividad, accompanied by her badly infected her vaginal vault. A recto-vaginal

the corresponding Record of Operation dated April husband, went to the United States to seek further fistula had formed in her reproductive organ which

11, 1984, the attending nurses entered these treatment. After four (4) months of consultations forced stool to excrete through the vagina. Another

remarks: and laboratory examinations, Natividad was told that surgical operation was needed to remedy the

she was free of cancer. Hence, she was advised to situation. Thus, in October 1984, Natividad

return to the Philippines. underwent another surgery.

sponge count lacking
2

On August 31, 1984, Natividad flew back to On November 12, 1984, Natividad and her husband
announced to
the Philippines, still suffering from pains. Two (2) filed with the Regional Trial Court, Branch
surgeon searched
weeks thereafter, her daughter found a piece of 96, Quezon City a complaint for damages against PSI
done (sic) but to no
gauze protruding from her vagina.Dr. Ampil was (owner of Medical City), Dr. Ampil and Dr. Fuentes.
avail continue for
immediately informed. He proceeded to Natividads
closure.
house where he managed to extract by hand a piece
On February 16, 1986, pending the
of gauze measuring 1.5 inches in width. Dr. Ampil
outcome of the above case, Natividad died. She was
duly substituted by her above-named children (the displaying in the lobby of the Medical City the names representation of the hospital in engaging the

Aganas). and specializations of its accredited physicians, services of Dr. Ampil. And lastly, PSI maintains that

including Dr. Ampil, estopped it from denying the the doctrine of corporate negligence is misplaced

existence of an employer-employee relationship because the proximate cause of Natividads injury

On March 17, 1993, the trial court
between them under the doctrine of ostensible was Dr. Ampils negligence.
rendered judgment in favor of spouses Agana finding
agency or agency by estoppel; and third, PSIs failure
PSI, Dr. Ampil and Dr. Fuentes jointly and severally
to supervise Dr. Ampil and its resident physicians and
liable. On appeal, the Court of Appeals, in its Decision The motion lacks merit.
nurses and to take an active step in order to remedy
dated September 6, 1996, affirmed the assailed
their negligence rendered it directly liable under
judgment with modification in the sense that the
the doctrine of corporate negligence.
As earlier mentioned, the First Division, in
complaint against Dr. Fuentes was dismissed.
its assailed Decision, ruled that an employer-

employee relationship in effect exists between

In its motion for reconsideration, PSI
PSI, Dr. Ampil and the Aganas filed with this Court the Medical City and Dr. Ampil.Consequently, both
contends that the Court erred in finding it liable
separate petitions for review are jointly and severally liable to the Aganas. This
under Article 2180 of the Civil Code, there being no
on certiorari. On January 31, 2007, the Court, ruling proceeds from the following ratiocination
employer-employee relationship between it and its
through its First Division, rendered a Decision holding in Ramos:
consultant, Dr. Ampil. PSI stressed that the Courts
that PSI is jointly and severally liable with Dr. Ampil
Decision in Ramos holding that an employer-
for the following reasons: first, there is an employer-
employee relationship in effect exists between We now discuss the
employee relationship between Medical City and Dr. responsibility of the hospital in
hospitals and their attending and visiting physicians
this particular incident. The
Ampil.The Court relied on Ramos v. Court of unique practice (among private
for the purpose of apportioning responsibility had
Appeals,[2] holding that for the purpose of hospitals) of filling up specialist
been reversed in a subsequent Resolution.[3] Further, staff with attending and visiting
apportioning responsibility in medical negligence consultants, who are allegedly
PSI argues that the doctrine of ostensible agency or
cases, an employer-employee relationship in effect not hospital employees,
agency by estoppel cannot apply because presents problems in
exists between hospitals and their attending and apportioning responsibility for
spouses Agana failed to establish one requisite of the
visiting physicians; second, PSIs act of publicly negligence in medical
doctrine, i.e., that Natividad relied on the malpractice cases. However,
the difficulty is only more
apparent than real.
In the first
place, hospitals exercise
significant control in the hiring
and firing of consultants and in
the conduct of their work
within the hospital
premises. Doctors who apply
for consultant slots, visiting or
attending, are required to
submit proof of completion of
residency, their educational
qualifications; generally,
evidence of accreditation by
the appropriate board
(diplomate), evidence of
fellowship in most cases, and
references. These
requirements are carefully
scrutinized by members of the
hospital administration or by a
review committee set up by the
hospital who either accept or
reject the application. This is
particularly true with
respondent hospital.
After a physician is
accepted, either as a visiting or
attending consultant, he is
normally required to attend
clinico-pathological
conferences, conduct bedside
rounds for clerks, interns and
residents, moderate grand
rounds and patient audits and
perform other tasks and
responsibilities, for the
privilege of being able to
maintain a clinic in the
hospital, and/or for the
privilege of admitting patients
into the hospital. In addition to
these, the physicians
performance as a specialist is
generally evaluated by a peer
review committee on the basis
of mortality and morbidity
statistics, and feedback from
patients, nurses, interns and
residents. A consultant remiss
in his duties, or a consultant
who regularly falls short of the
minimum standards
acceptable to the hospital or
its peer review committee, is
normally politely terminated.
In other words,
private hospitals hire, fire and
exercise real control over their
attending and visiting
consultant staff. While
consultants are not, technically
employees, a point which
respondent hospital asserts in
denying all responsibility for
the patients condition, the
control exercised, the hiring,
and the right to terminate
consultants all fulfill the
important hallmarks of an
employer-employee
relationship, with the
exception of the payment of
wages. In assessing whether
such a relationship in fact
exists, the control test is
determining.Accordingly, on
the basis of the foregoing, we
rule that for the purpose of
allocating responsibility in
medical negligence cases, an
employer-employee
relationship in effect exists
between hospitals and their
attending and visiting
physicians. This being the case,
the question now arises as to
whether or not respondent
hospital is solidarily liable with
respondent doctors for
petitioners condition.
The basis for holding
an employer solidarily
responsible for the negligence
of its employee is found in
Article 2180 of the Civil Code
which considers a person
accountable not only for his
own acts but also for those of
others based on the formers
responsibility under a
relationship of partia ptetas.
Clearly, in Ramos, the Court considered the
peculiar relationship between a hospital and its
consultants on the bases of certain factors. One such
factor is the control test wherein the hospital

exercises control in the hiring and firing of In Nograles, et
consultants, like Dr. Ampil, and in the conduct of v. Capitol Medical Center, et al.,[4] through
their work. Justice Antonio T. Carpio, the Court held:
The question now is
Actually, contrary to PSIs contention, the
whether CMC is automatically
Court did not reverse its ruling in Ramos. What it exempt from liability considering
that Dr. Estrada is an
clarified was that the De Los Santos Medical Clinic did independent contractor-
not exercise control over its consultant, hence, there physician.
is no employer-employee relationship between In general, a hospital is
not liable for the negligence of an
them. Thus, despite the granting of the said hospitals
independent contractor-
motion for reconsideration, the doctrine physician. There is, however, an
exception to this principle. The
inRamos stays, i.e., for the purpose of allocating
hospital may be liable if the
responsibility in medical negligence cases, an physician is the ostensible agent
of the hospital. (Jones v. Philpott,
employer-employee relationship exists between 702 F. Supp. 1210 [1988]) This
hospitals and their consultants. exception is also known as the
doctrine of apparent authority.
(Sometimes referred to as the
apparent or ostensible agency
theory. [King v. Mitchell, 31
In the instant cases, PSI merely offered
A.D.3rd 958, 819 N.Y. S.2d 169
a general denial of responsibility, maintaining that (2006)].
consultants, like Dr. Ampil, are independent xxx
contractors, not employees of the hospital. Even The doctrine of
apparent authority essentially
assuming that Dr. Ampil is not an employee
involves two factors to
of Medical City, but an independent contractor, still determine the liability of an
independent contractor-
the said hospital is liable to the Aganas.
physician.
The first factor focuses
al.
on the hospitals manifestations
Mr. and is sometimes described as an
inquiry whether the hospital
acted in a manner which would
lead a reasonable person to
conclude that the individual who
was alleged to be negligent was
an employee or agent of the
hospital. (Diggs v. Novant Health,
Inc., 628 S.E.2d 851 (2006)
citing Hylton v. Koontz, 138 N.C.
App. 629 (2000). In this regard,
the hospital need not make
express representations to the
patient that the treating
physician is an employee of the
hospital; rather a
representation may be general
and implied. (Id.)
The doctrine of
apparent authority is a specie of
the doctrine of estoppel. Article
1431 of the Civil Code provides
that [t]hrough estoppel, an
admission or representation is
rendered conclusive upon the
person making it, and cannot be
denied or disproved as against
the person relying
thereon. Estoppel rests on this
rule: Whether a party has, by his
own declaration, act, or
omission, intentionally and
deliberately led another to
believe a particular thing true,
and to act upon such belief, he
cannot, in any litigation arising
out of such declaration, act or
 omission, be permitted to falsify
knew him to be a staff member of Medical City, a
it. (De Castro v. Ginete, 137 Phil.
453 [1969], citing Sec. 3, par. A, prominent and known hospital.
Rule 131 of the Rules of
Court. See also King v.
Mitchell, 31 A.D.3rd 958, 819
Q Will you tell us what
N.Y.S.2d 169 [2006]).
transpired in your
xxx visit to Dr. Ampil?
The second factor
focuses on the patients
reliance. It is sometimes A Well, I saw Dr. Ampil at the
characterized as an inquiry on Medical City, I know
whether the plaintiff acted in him to be a staff
reliance upon the conduct of the member there, and I
hospital or its agent, consistent told him about the
with ordinary care and prudence. case of my wife and
(Diggs v. Novant Health, Inc.) he asked me to bring
my wife over so she
could be examined.
Prior to that, I have
known Dr. Ampil,
PSI argues that the doctrine of apparent first, he was
staying in front of our
authority cannot apply to these cases because house, he was a
spouses Agana failed to establish proof of their neighbor, second, my
daughter was his
reliance on the representation of Medical City that student in the
Dr. Ampil is its employee. University of the East
School of Medicine at
Ramon Magsaysay;
and when my
The argument lacks merit. daughter opted to
establish a hospital
or a clinic, Dr. Ampil
was one of our
Atty. Agana categorically testified that one consultants on how
to establish that
of the reasons why he chose Dr. Ampil was that he hospital. And from
there, I have known
that he was a
specialist when it
comes to that illness.
Atty. Agcaoili
On that particular
occasion, April 2,
1984, what was your
reason for choosing
to contact Dr. Ampil
in connection with
your wifes illness?
A First, before that, I have
known him to be a
specialist on that part
of the body as a
surgeon; second, I
have known him to
be a staff member of
the Medical City
which is a prominent
and known
hospital. And third,
because he is a
neighbor, I expect
more than the usual
medical service to be
given to us, than his
ordinary patients.[5]
 A Yes, sir, this was submitted to
modern hospital now tends to organize a highly-
the hospital with the
Clearly, PSI is estopped from passing the professional medical staff whose competence and record of the
patient.
blame solely to Dr. Ampil. Its act of displaying his performance need also to be monitored by the

name and those of the other physicians in the public hospital commensurate with its inherent

responsibility to provide quality medical care.[8] Such Q Was the hospital

directory at the lobby of the hospital amounts to
immediately
holding out to the public that it offers quality responsibility includes the proper supervision of the informed about the
members of its medical staff. Accordingly, missing sponges?
medical service through the listed physicians. This

justifies Atty. Aganas belief that Dr. Ampil was a the hospital has the duty to make a reasonable A That is the duty of the
surgeon, sir.
member of the hospitals staff. It must be stressed effort to monitor and oversee the treatment

that under the doctrine of apparent authority, the prescribed and administered by the physicians
Q As a witness to an untoward
question in every case is whether the principal has practicing in its premises.
incident in the
by his voluntary act placed the agent in such a operating room, was
it not your
situation that a person of ordinary prudence,
obligation, Dr., to
Unfortunately, PSI had been remiss in its
conversant with business usages and the nature of also report to the
duty. It did not conduct an immediate hospital because you
the particular business, is justified in presuming are under the control
investigation on the reported missing gauzes to the
that such agent has authority to perform the and direction of the
great prejudice and agony of its patient. Dr. Jocson, a hospital?
particular act in question.[6] In these cases, the
member of PSIs medical staff, who testified on A The hospital already had the
circumstances yield a positive answer to the
whether the hospital conducted an investigation, record of the two OS
question. missing, sir.
was evasive, thus:

Q If you place yourself in the

The challenged Decision also anchors its Q We go back to the operative position of the
ruling on the doctrine of corporate technique, this was hospital, how will
signed by Dr. you recover.
responsibility.[7] The duty of providing quality Puruganan, was this
submitted to the A You do not answer my
medical service is no longer the sole prerogative and
hospital? question with
responsibility of the physician. This is because the another question.

Q Did the hospital do anything
about the missing
gauzes?
supervision. Not only did PSI breach its duty to
Atty. Agana
oversee or supervise all persons who practice
medicine within its walls, it also failed to take an

A The hospital left it up to the
surgeon who was
doing the operation,
sir.
Precisely, I am asking you if the
hospital did a move,
if the hospital did a
move.
A I cannot answer that.
active step in fixing the negligence committed.This
renders PSI, not only vicariously liable for the
negligence of Dr. Ampil under Article 2180 of the
Civil Code, but also directly liable for its own

negligence under Article 2176.

Q Did the hospital investigate
the surgeon who did
the operation?
Court
A I am not in the position to Moreover, there is merit in the trial courts
answer that, sir. By that answer, would you
finding that the failure of PSI to conduct an
mean to tell the
Court that you were investigation established PSIs part in the dark
Q You never did hear the aware if there was
conspiracy of silence and concealment about the
hospital such a move done by
investigating the the hospital? gauzes. The following testimony of Atty. Agana
doctors involved in A I cannot answer that, your supports such findings, thus:
this case of those honor, because I did
missing sponges, or not have any more
did you hear follow-up of the case Q You said you relied on the
something? that happened until promise of Dr. Ampil
now.[9] and despite the
promise you were
xxxxxx not able to obtain the
said record. Did you
go back to the record
A I think we already made a custodian?
report by just saying
A I did not because I was talking
that two sponges The above testimony obviously shows Dr.
to Dr. Ampil. He
were missing, it is up
Jocsons lack of concern for the patients. Such promised me.
to the hospital to
make the move. conduct is reflective of the hospitals manner of
 Q After your talk to Dr. Ampil,
you went to the
record custodian?

AI went to the record

custodian to get the
clinical record of my
wife, and I was given
a portion of the
records consisting of
the findings, among
them, the entries of
the dates, but not
the operating
procedure and
operative report.[10]

In sum, we find no merit in the motion for

reconsideration.

WHEREFORE, we DENY PSIs motion for

reconsideration with finality.

SO ORDERED.
 FIRST DIVISION
Tagorio and his parents, Basilio R. Tagorio and Salvador, and the Administrative Officer of

Herminia Tagorio, docketed as Civil Case No. Marymount School, Ricardo Pilao. In its
CHILD LEARNING CENTER, INC. G.R. No.
150920 91-1389. The complaint[1] alleged that during the defense,[2]CLC maintained that there was
and SPOUSES EDGARDO L. LIMON
and SYLVIA S. LIMON, Present: school year 1990-1991, Timothy was a Grade IV nothing defective about the locking mechanism
Petitioners, student at Marymount School, an academic of the door and that the fall of Timothy was not
D
institution
A operated and maintained by Child due to its fault or negligence. CLC further
VI
Learning Center, Inc. (CLC). In the afternoon of maintained that it had exercised the due care and
D
MarchE,5, 1991, between 1 and 2 p.m., Timothy diligence of a good father of a family to ensure
JR.
entered, Cthe boys comfort room at the third floor the safety, well-being and convenience of its

of the .J.
Marymount building to answer the call of students.
(C
nature.haiHe, however, found himself locked After trial, the court a quo found in favor of
rm
insidean)and unable to get out. Timothy started to respondents and ordered petitioners CLC and
,
panic and so he banged and kicked the door and Spouses Limon to pay respondents, jointly and
- versus - QUISUMBING,
YNARES-SANTIAGO, yelled several times for help. When no help severally, P200,253.12 as actual and
CARPIO, and
arrived he decided to open the window to call for compensatory damages, P200,000 as moral
AZCUNA, JJ.
TIMOTHY TAGARIO, assisted by help. In the process of opening the window, damages, P50,000 as exemplary
his parents BASILIO TAGORIO and Promulgated:
HERMINIA TAGORIO, Timothy went right through and fell down three damages, P100,000 as attorneys fees and the
Respondents. November 25, Timothy was hospitalized and given
stories. costs of the suit. The trial court disregarded the
2005
medical treatment for serious multiple physical
x-------------------------------------------------------------------------------------- corporate fiction of CLC and held the Spouses
-----x
injuries. Limon personally liable because they were the
DECISION ones who actually managed the affairs of the

AZCUNA, J.: An action under Article 2176 of the Civil Code CLC.

was filed by respondents against the CLC, the

members of its Board of Directors, namely Petitioners CLC and the Spouses Limon
This petition started with a tort case filed with
Spouses Edgardo and Sylvia Limon, Alfonso appealed the decision to the Court of Appeals.
the Regional Trial Court of Makati by Timothy
Cruz, Carmelo Narciso and Luningning

On September 28, 2001, the Court of
Appeals[3] affirmed the decision in toto.
Petitioners elevated the case to this Court under
Rule 45 of the Rules of Court, after their motion
for reconsideration was denied by Resolution of
November 23, 2001.[4]
Petitioners question several factual findings of
the trial court, which were affirmed by the Court
of Appeals, namely:[5]
1. That
respondent was allegedly
trapped inside the boys
comfort room located at the
third floor of the school
building on March 5, 1991;
2. That
respondent allegedly banged
and kicked the door of said
comfort room several times to
attract attention and that he
allegedly yelled thereat for
help which never came;
3. That
respondent was allegedly
forced to open the window of
said comfort room to seek
help;
4. That the
lock set installed at the boys
comfort room located in the
third floor of the school
building on March 5, 1991 was
allegedly defective and that
the same lock set was involved
in previous incidents of
alleged malfunctioning;
5. That
petitioner Child Learning
Center, Inc. allegedly failed to
install iron grills in the
window of the boys comfort
room at the third floor of the
school building;
6. That
petitioner Child Learning
Center, Inc. allegedly failed to
exercise the due care of a good
father of a family in the
selection and supervision of
its employees;
7. That the
proximate cause of
respondents accident was
allegedly not due to his own
contributory negligence;
8. That
there was an alleged basis to
apply the legal principle of
piercing the veil of corporate
entity in resolving the issue of
alleged liability of petitioners
Edgardo L. Limon and Sylvia
S. Limon;
9. That
there was alleged basis for
petitioners to pay respondent
actual, moral and exemplary
damages, plus attorneys fees;
10. That there
was an alleged basis in not
awarding petitioners prayer
for moral and exemplary
damages, including attorneys
fees.
Generally, factual findings of the trial
court, affirmed by the Court of Appeals, are final
and conclusive and may not be reviewed on
appeal. The established exceptions are: (1) when
the inference made is manifestly mistaken,
absurd or impossible; (2) when there is grave
abuse of discretion; (3) when the findings are
grounded entirely on speculations, surmises or
conjectures; (4) when the judgment of the Court
of Appeals is based on misapprehension of facts;
(5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its
findings, went beyond the issues of the case and
the same is contrary to the admissions of both
appellant and appellee; (7) when the findings of
fact are conclusions without citation of specific
evidence on which they are based; (8) when the
Court of Appeals manifestly overlooked certain

relevant facts not disputed by the parties and
which, if properly considered, would justify a
different conclusion; and (9) when the findings
of fact of the Court of Appeals are premised on
the absence of evidence and are contradicted by
the evidence on record.[6]
On the basis of the records of this case,
this Court finds no justification to reverse the
factual findings and consider this case as an
exception to the general rule.
In every tort case filed under Article
2176 of the Civil Code, plaintiff has to prove by a
preponderance of evidence: (1) the damages
suffered by the plaintiff; (2) the fault or
negligence of the defendant or some other
person for whose act he must respond; and (3)
the connection of cause and effect between the
fault or negligence and the damages incurred.[7]
Fault, in general, signifies a voluntary
act or omission which causes damage to the right
of another giving rise to an obligation on the part
of the actor to repair such damage. Negligence is
the failure to observe for the protection of the
interest of another person that degree of care,
precaution and vigilance which the
circumstances justly demand. Fault requires the
execution of a positive act which causes damage
to another while negligence consists of the
omission to do acts which result in damage to
another.[8]
In this tort case, respondents contend
that CLC failed to provide precautionary
measures to avoid harm and injury to its
students in two instances: (1) failure to fix a
defective door knob despite having been notified
of the problem; and (2) failure to install safety
grills on the window where Timothy fell from.
The trial court found that the lock was
defective on March 5, 1991:[9]
The door knob was
defective. After the incident of
March 5, 1991, said door knob
was taken off the door of the
toilet where Timothy was in.
The architect who testified
during the trial declared that
although there were standard
specifications for door knobs
for comfort room[s], and he
designed them according to
that requirement, he did not
investigate whether the door
knob specified in his plans
during the construction [was]
actually put in place. This is so
because he did not verify
whether the door knob he
specified w[as] actually put in
place at the particular comfort
room where Timothy was
barred from getting outside.
(TSN, pp. 19-20, December 8,
1994).
The Court of Appeals held that there
was no reason to disturb the factual
assessment:[10]
After having perused
the records, We fail to see any
indication of whim or
arbitrariness on the part of the
trial magistrate in his
assessment of the facts of the
case. That said, We deem it not
to be within Our business to
recast the factual conclusions
reached by the court below.
Petitioners would make much of the
point that no direct evidence was presented to
prove that the door knob was indeed defective
on the date in question.
 The fact, however, that Timothy fell out Nevertheless, the fact is that such window, as

through the window shows that the door could petitioners themselves point out, was Our pronouncement that Timothy

not be opened from the inside. That sufficiently approximately 1.5 meters from the floor, so that climbed out of the window because he could not

points to the fact that something was wrong with it was within reach of a student who finds the get out using the door, negates petitioners other

the door, if not the door knob, under the regular exit, the door, not functioning. contention that the proximate cause of the

principle of res ipsa loquitor. The doctrine of res Petitioners, with the due diligence of a good accident was Timothys own negligence. The

ipsa loquitor applies where (1) the accident was of father of the family, should have anticipated that injuries he sustained from the fall were the

such character as to warrant an inference that it a student, locked in the toilet by a non-working product of a natural and continuous sequence,

would not have happened except for the door, would attempt to use the window to call unbroken by any intervening cause, that

defendants negligence; (2) the accident must for help or even to get out. Considering all the originated from CLCs own negligence.

have been caused by an agency or circumstances, therefore, there is sufficient basis

instrumentality within the exclusive to sustain a finding of liability on petitioners We, however, agree with petitioners

management or control of the person charged part. that there was no basis to pierce CLCs separate

with the negligence complained of; and (3) the corporate personality. To disregard the

accident must not have been due to any Petitioners argument that CLC corporate existence, the plaintiff must prove: (1)
voluntary action or contribution on the part of exercised the due diligence of a good father of a Control by the individual owners, not mere

the person injured.[11] Petitioners are clearly family in the selection and supervision of its majority or complete stock ownership, resulting

answerable for failure to see to it that the doors employees is not decisive. Due diligence in the in complete domination not only of finances but

of their school toilets are at all times in working selection and supervision of employees is of policy and business practice in respect to a

condition. The fact that a student had to go applicable where the employer is being held transaction so that the corporate entity as to this

through the window, instead of the door, shows responsible for the acts or omissions of others transaction had at the time no separate mind,

that something was wrong with the door. under Article 2180 of the Civil Code.[12] In this will or existence of its own; (2) such control must

case, CLCs liability is under Article 2176 of the have been used by the defendant to commit

As to the absence of grills on the Civil Code, premised on the fact of its own fraud or wrong, to perpetuate the violation of a
window, petitioners contend that there was no negligence in not ensuring that all its doors are statutory or other positive legal duty, or a

such requirement under the Building Code. properly maintained. dishonest and unjust act in contravention of the
plaintiffs legal right; and (3) the control and

breach of duty must proximately cause the injury

SO ORDERED.
or unjust loss complained of. The absence of

these elements prevents piercing the corporate

veil.[13] The evidence on record fails to show that

these elements are present, especially given the

fact that plaintiffs complaint had pleaded that

CLC is a corporation duly organized and

existing under the laws of the Philippines.

On 9th and 10th points raised

concerning the award of damages, the resolution

would rest on factual determinations by the trial

court, affirmed by the Court of Appeals, and no

legal issue warrants our intervention.

WHEREFORE, the petition is partly granted and

the Decision and Resolution of the Court of

Appeals in CA-G.R. CV No. 50961 dated

September 28, 2001 and November 23, 2001,

respectively, are MODIFIED in that petitioners

Spouses Edgardo and Sylvia Limon are absolved

from personal liability. The Decision and

Resolution are AFFIRMED in all other respects.

No pronouncement as to costs.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-30896 April 28, 1983
JOSE O. SIA, petitioner,
vs.
THE PEOPLE OF THE
PHILIPPINES, respondent.
DE CASTRO, J.:
Petition for review of the decision of the Court of
Appeals affirming the decision of the Court of
First Instance of Manila convicting the appellant
of estafa, under an information which reads:
That in, about or during the
period comprised' between
July 24, 1963 and December
31, 1963, both dates
inclusive, in the City of
Manila, Philippines, the said
accused did then and there
willfully, unlawfully and
feloniously defraud the
Continental Bank, a banking
institution duly organized and
doing business in the City of
Manila, in the following
manner, to wit: the said
accused, in his capacity as
president and general
manager of the Metal
Manufacturing of the
Philippines, Inc. (MEMAP)
and on behalf of said
company, obtained delivery of
150 M/T Cold Rolled Steel
Sheets valued at P 71,023.60
under a trust receipt
agreement under L/C No.
63/109, which cold rolled
steel sheets were consigned
to the Continental Bank,
under the express obligation
on the part of said accused of
holding the said steel sheets
in trust and selling them and
turning over the proceeds of
the sale to the Continental
Bank; but the said accused,
once in possession of the
said goods, far from
complying with his aforesaid
obligation and despite
demands made upon him to
do so, with intent to defraud,
failed and refused to return
the said cold rolled sheets or
account for the proceeds
thereof, if sold, which the said
accused willfully, unlawfully
and feloniously
misappropriated, misapplied
and converted to his own
personal use and benefit, to
the damage and prejudice of
the said Continental Bank in
the total amount of
P146,818.68, that is the
balance including the interest
after deducting the sum of
P28,736.47 deposited by the
said accused with the bank as
marginal deposit and forfeited
by the said from the value of
the said goods, in the said
sum of P71,023.60. (Original
Records, p. 1).
In reviewing the evidence, the Court of Appeals
came up with the following findings of facts
which the Solicitor General alleges should be
conclusive upon this Court:
There is no debate on certain
antecedents: Accused Jose 0.
Sia sometime prior to 24 May,
1963, was General Manager
of the Metal Manufacturing
Company of the Philippines,
Inc. engaged in the
manufacture of steel office
equipment; on 31 May, 1963,
because his company was in
need of raw materials to be
imported from abroad, he
applied for a letter of credit to
import steel sheets from
Mitsui Bussan Kaisha, Ltd. of
Tokyo, Japan, the application
being directed to the
Continental Bank, herein
complainant, Exhibit B and
his application having been
approved, the letter of credit
was opened on 5 June, 1963
in the amount of $18,300,
Exhibit D; and the goods
arrived sometime in July,
1963 according to accused
himself, tsn. II:7; now from
here on there is some debate
on the evidence; according to
Complainant Bank, there was
permitted delivery of the steel
sheets only upon execution of
a trust receipt, Exhibit A;
while according to the
accused, the goods were
delivered to him sometime
before he executed that trust
receipt in fact they had
already been converted into
 steel office equipment by the
time he signed said trust
receipt, tsn. II:8; but there is
no question - and this is not
debated - that the bill of
exchange issued for the
purpose of collecting the
unpaid account thereon
having fallen due (see Exh. B)
neither accused nor his
company having made
payment thereon
notwithstanding demands,
Exh. C and C-1, dated 17 and
27 December, 1963, and the
accounts having reached the
sum in pesos of P46,818.68
after deducting his deposit
valued at P28,736.47; that
was the reason why upon
complaint by Continental
Bank, the Fiscal filed the
information after preliminary
investigation as has been
said on 22 October, 1964.
(Rollo [CA], pp. 103- 104).
The first issue raised, which in effect combines
the first three errors assigned, is whether
petitioner Jose O. Sia, having only acted for and
in behalf of the Metal Manufacturing Company
of the Philippines (Metal Company, for short) as
President thereof in dealing with the
complainant, the Continental Bank, (Bank for
short) he may be liable for the crime charged.
In discussing this question, petitioner proceeds,
in the meantime, on the assumption that the
acts imputed to him would constitute the crime
of estafa, which he also disputes, but seeks to
avoid liability on his theory that the Bank knew
all along that petitioner was dealing with him
only as an officer of the Metal Company which
was the true and actual applicant for the letter of
credit (Exhibit B) and which, accordingly,
assumed sole obligation under the trust receipt
(Exhibit A). In disputing the theory of petitioner,
the Solicitor General relies on the general
principle that when a corporation commits an
act which would constitute a punishable offense
under the law, it is the responsible officers
thereof, acting for the corporation, who would
be punished for the crime, The Court of Appeals
has subscribed to this view when it quoted
approvingly from the decision of the trial court
the following:
A corporation is an artificial
person, an abstract being. If
the defense theory is followed
unscrupulously legions would
form corporations to commit
swindle right and left where
nobody could be convicted,
for it would be futile and
ridiculous to convict an
abstract being that can not be
pinched and confined in jail
like a natural, living person,
hence the result of the
defense theory would be
hopeless chose in business
and finance. It is completely
untenable. (Rollo [CA], p.
108.)
The above-quoted observation of the trial court
would seem to be merely restating a general
principle that for crimes committed by a
corporation, the responsible officers thereof
would personally bear the criminal liability.
(People vs. Tan Boon Kong, 54 Phil. 607. See
also Tolentino, Commercial Laws of the
Philippines, p. 625, citing cases.)
The case cited by the Court of Appeals in
support of its stand-Tan Boon Kong
case, supra-may however not be squarely
applicable to the instant case in that the
corporation was directly required by law to do
an act in a given manner, and the same law
makes the person who fails to perform the act in
the prescribed manner expressly liable
criminally. The performance of the act is an
obligation directly imposed by the law on the
corporation. Since it is a responsible officer or
officers of the corporation who actually perform
the act for the corporation, they must of
necessity be the ones to assume the criminal
liability; otherwise this liability as created by the
law would be illusory, and the deterrent effect of
the law, negated.
In the present case, a distinction is to be found
with the Tan Boon Kong case in that the act
alleged to be a crime is not in the performance
of an act directly ordained by law to be
performed by the corporation. The act is
imposed by agreement of parties, as a practice
observed in the usual pursuit of a business or a
commercial transaction. The offense may arise,
if at all, from the peculiar terms and condition
agreed upon by the parties to the transaction,
not by direct provision of the law. The intention
of the parties, therefore, is a factor determinant
of whether a crime was committed or whether a
civil obligation alone intended by the parties.
With this explanation, the distinction adverted to
between the Tan Boon Kong case and the case
at bar should come out clear and meaningful. In
the absence of an express provision of law
making the petitioner liable for the criminal
offense committed by the corporation of which
he is a president as in fact there is no such
provisions in the Revised Penal Code under
which petitioner is being prosecuted, the
existence of a criminal liability on his part may
not be said to be beyond any doubt. In all
criminal prosecutions, the existence of criminal
liability for which the accused is made
answerable must be clear and certain. The
maxim that all doubts must be resolved in favor
of the accused is always of compelling force in
the prosecution of offenses. This Court has thus
far not ruled on the criminal liability of an officer
of a corporation signing in behalf of said
corporation a trust receipt of the same nature as
that involved herein. In the case of Samo vs.
People, L-17603-04, May 31, 1962, the accused
was not clearly shown to be acting other than in
his own behalf, not in behalf of a corporation.
The next question is whether the violation of a
trust receipt constitutes estafa under Art. 315
(1-[2]) of the Revised Penal Code, as also
raised by the petitioner. We now entertain grave
doubts, in the light of the promulgation of P.D.
115 providing for the regulation of trust receipts
transaction, which is a very comprehensive
piece of legislation, and includes an express
provision that if the violation or offense is
committed by a corporation, partnership,
association or other juridical entities the penalty
provided for in this Decree shall be imposed
upon the directors, officers, employees or other
officials or persons therein responsible for the
offense, without prejudice to civil liabilities
arising from the criminal offense. The question
that suggests itself is, therefore, whether the
provisions of the Revised Penal Code, Article
315, par. 1 (b) are not adequate to justify the
punishment of the act made punishable by P.D.
115, that the necessity was felt for the
promulgation of the decree. To answer this
question, it is imperative to make an indepth
analysis of the conditions usually embodied in a
trust receipt to best their legal sufficiency to
constitute the basis for holding the violation of
said conditions as estafa under Article 315 of
the Revised Penal Code which P.D. 115 now
seeks to punish expressly.
As executed, the trust receipt in question reads:
I/WE HEREBY AGREE TO
HOLD SAID GOODS IN
TRUST FOR THE SAID
BANK as its property with
liberty to sell the same for its
account but without authority
to make any other disposition
whatsoever of the said goods
or any part thereof (or the
proceeds thereof) either way
of conditional sale, pledge or
otherwise;
In case of sale I/we further
agree to hand the proceeds
as soon as received to the
BANK to apply against the
relative acceptance (as
described above) and for the
payment of any other
indebtedness of mine/ours to
CONTINENTAL BANK.
(Original Records, p. 108)
One view is to consider the transaction as
merely that of a security of a loan, and that the
trust element is but and inherent feature of the
security aspect of the arrangement where the
goods are placed in the possession of the
"entrustee," to use the term used in P.D. 115,
violation of the element of trust not being
intended to be in the same concept as how it is
understood in the criminal sense. The other
view is that the bank as the owner and
"entrustor" delivers the goods to the "entrustee,
" with the authority to sell the goods, but with
the obligation to give the proceeds to the
"entrustor" or return the goods themselves if not
sold, a trust being thus created in the full sense
as contemplated by Art. 315, par. 1 (b).
We consider the view that the trust receipt
arrangement gives rise only to civil liability as
the more feasible, before the promulgation of
P.D. 115. The transaction being contractual, the
intent of the parties should govern. Since the
trust receipt has, by its nature, to be executed
upon the arrival of the goods imported, and
acquires legal standing as such receipt only
upon acceptance by the "entrustee," the trust
receipt transaction itself, the antecedent acts
consisting of the application of the L/C, the
approval of the L/C and the making of the
marginal deposit and the effective importation of
the goods, all through the efforts of the importer
who has to find his supplier, arrange for the
payment and shipment of the imported goods-
all these circumstances would negate any intent
of subjecting the importer to criminal
prosecution, which could possibly give rise to a
case of imprisonment for non-payment of a
debt. The parties, therefore, are deemed to
have consciously entered into a purely
commercial transaction that could give rise only
to civil liability, never to subject the "entrustee"
to criminal prosecution. Unlike, for instance,
when several pieces of jewelry are received by
a person from the owner for sale on
commission, and the former misappropriates for
his personal use and benefit, either the
jewelries or the proceeds of the sale, instead of
returning them to the owner as is his obligation,
the bank is not in the same concept as the
jewelry owner with full power of disposition of
the goods, which the bank does not have, for
the bank has previously extended a loan which
the L/C represents to the importer, and by that
loan, the importer should be the real owner of
the goods. If under the trust receipt the bank is
made to appear as the owner, it was but an
artificial expedient, more of a legal fiction than
fact, for if it were really so, it could dispose of
the goods in any manner it wants, which it
cannot do, just to give consistency with the
purpose of the trust receipt of giving a stronger
security for the loan obtained by the importer.
To consider the bank as the true owner from the
inception of the transaction would be to
disregard the loan feature thereof, a feature
totally absent in the case of the transaction
between the jewel-owner and his agent.
Consequently, if only from the fact that the trust
receipt transaction is susceptible to two
reasonable interpretation, one as giving rise
only to civil liability for the violation of the
condition thereof, and the other, as generating
also criminal liability, the former should be
adopted as more favorable to the supposed
offender. (Duran vs. CA, L-39758, May 7, 1976,
71 SCRA 68; People vs. Parayno, L-24804, July
5, 1968, 24 SCRA 3; People vs. Abendan, L-
1481, January 28,1949,82 Phil. 711; People vs.
Bautista, L-1502, May 24, 1948, 81 Phil. 78;
People vs. Abana, L-39, February 1, 1946, 76
Phil. 1.)
There is, moreover, one circumstance
appearing on record, the significance of which
should be properly evaluated. As stated in
petitioner's brief (page 2), not denied by the
People, "before the Continental Bank approved
the application for a letter of credit (Exhibit 'D'),
subsequently covered by the trust receipt, the
Continental Bank examined the financial
capabilities of the applicant, Metal
Manufacturing Company of the Philippines
because that was the bank's standard
procedure (Testimony of Mr. Ernesto Garlit,
Asst. Manager of the Foreign Department,
Continental Bank, t.s.n., August 30, 1965). The
Continental Bank did not examine the financial
capabilities of herein petitioner, Jose O. Sia, in
connection with the same letter of credit. (Ibid). "
From this fact, it would appear as positively
established that the intention of the parties in
entering into the "trust receipt" agreement is
merely to afford a stronger security for the loan
evidenced by the letter of credit, may be not as
an ordinary pledge as observed in P.N.B. vs.
Viuda e Hijos de Angel Jose, et al., 63 Phil. 814,
citing In re Dunlap C (206 Fed. 726) but neither
as a transaction falling under Article 315-1 (b) of
the Revised Penal Code giving rise to criminal
liability, as previously explained and
demonstrated.
It is worthy of note that the civil liability imposed
by the trust receipt is exclusively on the Metal
Company. Speaking of such liability alone, as
one arising from the contract, as distinguished
from the civil liability arising out of a crime, the
petitioner was never intended to be equally
liable as the corporation. Without being made
so liable personally as the corporation is, there
would then be no basis for holding him
criminally liable, for any violation of the trust
receipt. This is made clearly so upon
consideration of the fact that in the violation of
the trust agreement and in the absence of
positive evidence to the contrary, only the
corporation benefited, not the petitioner
personally, yet, the allegation of the information
is to effect that the misappropriation or
conversion was for the personal use and benefit
of the petitioner, with respect to which there is
variance between the allegation and the
evidence.
It is also worthy of note that while the trust
receipt speaks of authority to sell, the fact is
undisputed that the imported goods were to be
manufactured into finished products first before
they could be sold, as the Bank had full
knowledge of. This fact is, however, not
embodied in the trust agreement, thus
impressing on the trust receipt vagueness and
ambiguity which should not be the basis for
criminal prosecution, in the event of a violation
of the terms of the trust receipt. Again, P.D. 115
has express provision relative to the
"manufacture or process of the good with the
purpose of ultimate sale," as a distinct condition
from that of "to sell the goods or procure their
sale" (Section 4, (1). Note that what is
embodied in the receipt in question is
the sale of imported goods, the manufacture
thereof not having been mentioned. The
requirement in criminal prosecution, that there
must be strict harmony, not variance, between
the allegation and the evidence, may therefore,
not be said to have been satisfied in the
instance case.
FOR ALL THE FOREGOING, We reverse the
decision of the Court of Appeals and hereby
acquit the petitioner, with costs de oficio.
SO ORDERED.
Concepcion, Jr., Guerrero, Vasquez, Relova
and Gutierrez, JJ., concur.
Fernando, CJ., Escolin, Plana, Abad Santos,
JJ., concur in the result.
Separate Opinions
TEEHANKEE, J., concurring:
In concur. Petitioner personally cannot be
charged and convicted for the crime of estafa
for failure of the corporation(MEMAP)
represented by him as president and general
manager to pay "the balance of P46,818.68 ....
including the interest after deducting the sum of
P28,736.47" which sum, according to the very
information, it was "deposited by the
said accused with the [Continental] bank as
marginal deposit and forfeited by the said bank
from the value of said goods, in the said sum of
P 71,023.60" representing the value of the cold
rolled steel sheets imported by
the corporation with the bank's financing under
its letter of credit and released to the importer
corporation under trust receipt in favor of the
bank.
All these acts were corporate acts with the
accused duly representing the corporation as its
president and general manager:
the application for bank financing,
the deposit (which was from corporate funds,
and not a deposit made by the petitioner, as
wrongly alleged in the information),
the receipt of the steel sheets,
then manufactured into finished products (which
could not technically be done under the terms of
the trust receipt required by the bank, under
which the very sheets were supposed to be sold
by the corporation) and the non-payment of the
credit extended by the bank. There is not the
slightest evidence nor intimation that these
corporate acts were unauthorized or that
petitioner personally had committed any fraud
or deceit in connection therewith or that he
had personallybeen responsible for or benefited
from the corporation's failure to pay the bank
the balance due under the trust receipt.
a security transaction intended to aid in
financing importers and retail dealers who do
not have sufficient funds or resources to finance
the importation or purchase of merchandise,
and who may not be able to acquire credit
except through utilization, as collateral, of the
merchandise imported or purchased' (53 Am. Jr.
961, cited in Samo vs. People, 115 Phil. 346,
349), sustains the lower court's rationale in
dismissing the information that the contract
covered by a trust receipt is merely a secured
loan. The goods imported by the small importer
and retail dealer through the bank's financing
remain of their own property and risk and
the old capitalist orientation of putting them in
jail for estafa for non-payment of the secured
loan (granted after they had been fully
investigated by the bank as good credit risks)
through the fiction of the trust receipt
device should no longer be permitted in this day
and age." **
The charge in the case at bar against petitioner-
accused must accordingly be dismissed.
acted for and on behalf of the Metal
Manufacturing Company, as its General
Manager, and was presumably authorized to do
so. This Court has not as yet laid down a ruling
on the criminal liability of a corporation officer
signing a trust receipt on behalf of the
corporation, a trust receipt being essentially a
financing transaction. It was only upon the
promulgation of PD 115 on January 29, 1973
that responsible directors, officers, employees
or other officials of a corporation, partnership,
associations or other juridical entities are made
expressly responsible for violation of the terms
of a trust receipt agreement committed by said
corporation, partnership, association or other
juridical entities.
Makasiar, J., dissent. The C.A. decision should
be affirmed.
Aquino, J., dissent. I vote for the affirmance of
the judgement of the C.A.

In the recent case of People vs. Cuevo, G. R.
No. L-27607, decided by the Court on May 7,
1981, the Court, for lack of necessary votes,
affirmed the dismissal of the same charge of
estafa, for non-payment of the debt evidenced
by the trust receipt, by the trial court presided by
Judge Ruperto Kapunan, Jr. who ruled that "the
holder of a trust receipt who disposed of the
goods covered thereby and in violation of its
terms, failed to deliver to the bank the proceeds
of the sale as payment of the debt secured by
the trust receipt" incurs only civil and not
criminal liability for non-payment of the debt
thus incurred. I reiterate my separate opinion
therein supporting the more liberal interpretation
that the trust receipt transaction "gives rise only
to civil liability on the part of the offender" and
holding that the very definition of a trust receipt,
to wit," ' (A) trust receipt is considered as
MELENCIO-HERRERA, J., concurring and
dissenting:
I dissent in so far as the Decision states that
violation of the terms of a trust receipt does not
constitute Estafa under Art. 315, par. 1 (b) of
the Revised Penal Code, for being contrary to
the rulings in People vs. Yu Chai Ho, 53 Phil.
874 (1928); PNB vs. Arrozal, 103 Phil. 213
(1958), and Samo vs. People, 5 SCRA 355
(1962).
I concur in so far as the Decision holds that
petitioner should not be held liable for the crime
of Estafa considering that in the cases above
enumerated, the persons who executed the
trust receipts acted in their own individual
capacities unlike in this case where petitioner
 SECOND DIVISION n
cylinder container of one brand with the liquefied
d
petroleum gas of another brand.
A
MANUEL C. ESPIRITU, JR., AUDIE G.R. No. 170891 b
a
LLONA, FREIDA F. ESPIRITU,
d
CARLO F. ESPIRITU, RAFAEL F.
, The Facts and the Case
ESPIRITU, ROLANDO M. MIRABUNA,
HERMILYN A. MIRABUNA, KIM
ROLAND A. MIRABUNA, KAYE J
ANN A. MIRABUNA, KEN RYAN A. J
MIRABUNA, JUANITO P. DE . Respondent Petron Corporation (Petron)
CASTRO, GERONIMA A. ALMONITE
and MANUEL C. DEE, who are the PETRON CORPORATION and sold and distributed liquefied petroleum gas (LPG) in
officers and directors of BICOL GAS
REFILLING PLANT CORPORATION, CARMEN J. DOLOIRAS, doing cylinder tanks that carried its trademark
Petitioners, Present:
Carpio, J., Chairperson, business under the name KRISTINA Promulgated: Gasul.[1] Respondent Carmen J. Doloiras owned and
- versus - Leonardo-De Castro,
operated Kristina Patricia Enterprises (KPE), the
PATRICIA ENTERPRISES,
B exclusive distributor of Gasul LPGs in the whole of
Respondents.
r November 24, 2009
i Sorsogon.[2] Jose Nelson Doloiras (Jose) served as
o KPEs manager.
n
x -------------------------------------------------------------------
,
--------------------- x

D
e Bicol Gas Refilling Plant Corporation (Bicol
l
Gas) was also in the business of selling and
C
DECISION
a distributing LPGs in Sorsogon but theirs carried the
s
trademark Bicol Savers Gas.Petitioner Audie Llona
t ABAD, J.:
i managed Bicol Gas.
l
l
o
,
In the course of trade and competition, any
a This case is about the offense or offenses that arise
from the reloading of the liquefied petroleum gas given distributor of LPGs at times acquired
possession of LPG cylinder tanks belonging to other volume of sales dropped significantly from June to charged the following: Jerome Misal, Jun Leorena,

distributors operating in the same area. They called July 2001. Rolly Mirabena, Audie Llona, and several John and

these captured cylinders. According to Jose, KPEs Jane Does, described as the directors, officers, and

manager, in April 2001 Bicol Gas agreed with KPE for stockholders of Bicol Gas. These directors, officers,

the swapping of captured cylinders since one On August 4, 2001 KPEs Jose saw a and stockholders were eventually identified during

distributor could not refill captured cylinders with its particular Bicol Gas truck on the Maharlika the preliminary investigation.

own brand of LPG. At one time, in the course of Highway. While the truck carried mostly Bicol Savers

implementing this arrangement, KPEs Jose visited LPG tanks, it had on it one unsealed 50-kg Gasul tank

the Bicol Gas refilling plant. While there, he noticed and one 50-kg Shellane tank. Jose followed the truck Subsequently, the provincial prosecutor

several Gasul tanks in Bicol Gas possession. He and when it stopped at a store, he asked the driver, ruled that there was probable cause only for violation

requested a swap but Audie Llona of Bicol Gas replied Jun Leorena, and the Bicol Gas sales representative, of R.A. 623 (unlawfully filling up registered tanks) and

that he first needed to ask the permission of the Bicol Jerome Misal, about the Gasul tank in their that only the four Bicol Gas employees, Mirabena,

Gas owners. That permission was given and they had truck. They said it was empty but, when Jose turned Misal, Leorena, and petitioner Llona, could be

a swap involving around 30 Gasul tanks held by Bicol open its valve, he noted that it was not. Misal and charged. The charge against the other petitioners

Gas in exchange for assorted tanks held by KPE. Leorena then admitted that the Gasul and Shellane who were the stockholders and directors of the

tanks on their truck belonged to a customer who had company was dismissed.

them filled up by Bicol Gas. Misal then mentioned

KPEs Jose noticed, however, that Bicol Gas that his manager was a certain Rolly Mirabena.

still had a number of Gasul tanks in its yard. He Dissatisfied, Petron and KPE filed a petition

offered to make a swap for these but Llona declined, for review with the Office of the Regional State

saying the Bicol Gas owners wanted to send those Because of the above incident, KPE filed a Prosecutor, Region V, which initially denied the

tanks to Batangas. Later Bicol Gas told Jose that it complaint[3] for violations of Republic Act (R.A.) 623 petition but partially granted it on motion for

had no more Gasul tanks left in its possession. Jose (illegally filling up registered cylinder tanks), as reconsideration. The Office of the Regional State

observed on almost a daily basis, however, that Bicol amended, and Sections 155 (infringement of trade Prosecutor ordered the filing of additional

Gas trucks which plied the streets of the province marks) and 169.1 (unfair competition) of the informations against the four employees of Bicol Gas

carried a load of Gasul tanks. He noted that KPEs Intellectual Property Code (R.A. 8293). The complaint for unfair competition. It ruled, however, that no
 Cruz on behalf of Petron,
case for trademark infringement was present. The owners, the Court of Appeals also ordered the
complied with what the rules
Secretary of Justice denied the appeal of Petron and inclusion of the stockholders of Bicol Gas in the require;

KPE and their motion for reconsideration. various charges, bringing to 16 the number of

persons to be charged, now including petitioners 2. Whether or not the

Manuel C. Espiritu, Jr., Freida F. Espiritu, Carlo F. facts of the case warranted the
filing of charges against the Bicol
Undaunted, Petron and KPE filed a special Espiritu, Rafael F. Espiritu, Rolando M. Mirabuna, Gas people for:
civil action for certiorari with the Court of Hermilyn A. Mirabuna, Kim Roland A. Mirabuna, Kaye
Appeals[4] but the Bicol Gas employees and Ann A. Mirabuna, Ken Ryan A. Mirabuna, Juanito P.
stockholders concerned opposed it, assailing the a)
de Castro, Geronima A. Almonite, and Manuel C. Dee
Filling up the
inadequacy in its certificate of non-forum shopping, (together with Audie Llona), collectively, petitioners LPG tanks
registered to
given that only Atty. Joel Angelo C. Cruz signed it on Espiritu, et al. The court denied the motion for
another
behalf of Petron. In its Decision[5] dated October 17, reconsideration of these employees and manufacture
r without the
2005, the Court of Appeals ruled, however, that Atty. stockholders in its Resolution dated January 6, 2006,
latters
Cruzs certification constituted sufficient hence, the present petition for review[6] before this consent in
violation of
compliance. As to the substantive aspect of the case, Court. R.A. 623, as
the Court of Appeals reversed the Secretary of amended;
Justices ruling. It held that unfair competition does

not necessarily absorb trademark The Issues Presented b)

infringement. Consequently, the court ordered the Trademark
infringement
filing of additional charges of trademark consisting in
infringement against the concerned Bicol Gas The petition presents the following issues: Bicol Gas use
of a
employees as well. trademark
that is
1. Whether or not the confusingly
certificate of non-forum similar to
Since the Bicol Gas employees presumably shopping that accompanied the Petrons
petition filed with the Court of registered
acted under the direct order and control of its Appeals, signed only by Atty.
 Gasul
having been signed only by Petron, through Atty. failure of KPE to sign the certificate of non-forum
trademark in
violation of Cruz. shopping does not render the petition defective with
section 155
also of R.A. respect to Petron which signed it through Atty.
8293; and Cruz.[10] The Court of Appeals, therefore, acted
But, while procedural requirements such correctly in giving due course to the petition before

c) as that of submittal of a certificate of non-forum it.

Unfair shopping cannot be totally disregarded, they may be
competition
consisting in deemed substantially complied with under justifiable
passing off circumstances.[7] One of these circumstances is Second. The Court of Appeals held that
Bicol Gas-
produced where the petitioners filed a collective action in under the facts of the case, there is probable cause
LPGs for which they share a common interest in its subject that petitioners Espiritu, et al. committed all three
Petron-
produced matter or raise a common cause of action. In such a crimes: (a) illegally filling up an LPG tank registered to
Gasul LPG in case, the certification by one of the petitioners may Petron without the latters consent in violation of R.A.
violation of
Section be deemed sufficient.[8] 623, as amended; (b) trademark infringement which
168.3 of R.A. consists in Bicol Gas use of a trademark that is
8293.
confusingly similar to Petrons registered Gasul
Here, KPE and Petron shared a common trademark in violation of Section 155 of R.A. 8293;
cause of action against petitioners Espiritu, et al., and (c) unfair competition which consists in
The Courts Rulings
namely, the violation of their proprietary rights with petitioners Espiritu, et al. passing off Bicol Gas-
respect to the use of Gasul tanks and produced LPGs for Petron-produced Gasul LPG in
trademark. Furthermore, Atty. Cruz said in his violation of Section 168.3 of R.A. 8293.
First. Petitioners Espiritu, et al. point out
certification that he was executing it for and on
that the certificate of non-forum shopping that
behalf of the Corporation, and co-petitioner Carmen
respondents KPE and Petron attached to the petition
J. Doloiras.[9] Thus, the object of the requirement to Here, the complaint adduced at the
they filed with the Court of Appeals was inadequate,
ensure that a party takes no recourse to multiple preliminary investigation shows that the one 50-kg

forums was substantially achieved. Besides, the Petron Gasul LPG tank found on the Bicol Gas truck
belonged to [a Bicol Gas] customer who had the intent to deceive the public and defraud its
1. Use in commerce
same filled up by BICOL GAS.[11] In other words, the any reproduction, counterfeit, competitor as to what it is selling.[14] Examples of this
copy or colorable imitation of a
customer had that one Gasul LPG tank brought to registered mark or the same would be the acts of an underground shoe
container or a dominant feature
Bicol Gas for refilling and the latter obliged. manufacturer in Malabon producing Nike branded
thereof in connection with the
sale, offering for sale, rubber shoes or the acts of a local shirt company with
distribution, advertising of any
goods or services including other no connection to La Coste, producing and selling
preparatory steps necessary to
R.A. 623, as amended,[12] punishes any shirts that bear the stitched logos of an open-jawed
carry out the sale of any goods or
person who, without the written consent of the services on or in connection with alligator.
which such use is likely to cause
manufacturer or seller of gases contained in duly confusion, or to cause mistake, or
to deceive; or
registered steel cylinders or tanks, fills the steel
2. Reproduce,
cylinder or tank, for the purpose of sale, disposal or Here, however, the allegations in the
counterfeit, copy or colorably
trafficking, other than the purpose for which the imitate a registered mark or a complaint do not show that Bicol Gas painted on its
dominant feature thereof and
manufacturer or seller registered the same. This was apply such reproduction, own tanks Petrons Gasul trademark or a confusingly
counterfeit, copy or colorable
what happened in this case, assuming the allegations imitation to labels, signs, prints, similar version of the same to deceive its customers

of KPEs manager to be true. Bicol Gas employees packages, wrappers, receptacles and cheat Petron. Indeed, in this case, the one tank
or advertisements intended to be
filled up with their firms gas the tank registered to used in commerce upon or in bearing the mark of Petron Gasul found in a truck full
connection with the sale, offering
Petron and bearing its mark without the latters for sale, distribution, or of Bicol Gas tanks was a genuine Petron Gasul tank,
advertising of goods or services
written authority. Consequently, they may be on or in connection with which more of a captured cylinder belonging to
prosecuted for that offense. such use is likely to cause competition. No proof has been shown that Bicol Gas
confusion, or to cause mistake, or
to deceive. has gone into the business of distributing imitation
Petron Gasul LPGs.
But, as for the crime of trademark
KPE and Petron have to show that the
infringement, Section 155 of R.A. 8293 (in relation to
alleged infringer, the responsible officers and staff of
Section 170[13]) provides that it is committed by any As to the charge of unfair competition,
Bicol Gas, used Petrons Gasul trademark or a
person who shall, without the consent of the owner Section 168.3 (a) of R.A. 8293 (also in relation to
confusingly similar trademark on Bicol Gas tanks with
of the registered mark:
 their goods with a
Section 170) describes the acts constituting the
appearance, like purpose;
offense as follows: which would
be likely to
influence
purchasers
Essentially, what the law punishes is the act
168.3. In particular, to believe
and without in any way limiting that the of giving ones goods the general appearance of the
the scope of protection against goods
unfair competition, the following goods of another, which would likely mislead the
shall be deemed guilty of unfair offered are
competition: those of a buyer into believing that such goods belong to the
manufacture
latter. Examples of this would be the act of
r or dealer,
(a) other than manufacturing or selling shirts bearing the logo of an
Any person, the actual
who is selling alligator, similar in design to the open-jawed alligator
manufacture
his goods r or dealer, in La Coste shirts, except that the jaw of the alligator
and gives or who
them the in the former is closed, or the act of a producer or
otherwise
general clothes the seller of tea bags with red tags showing the shadow
appearance goods with
of goods of such of a black dog when his competitor is producing or
another appearance selling popular tea bags with red tags showing the
manufacture as shall
r or dealer, deceive the shadow of a black cat.
either as to public and
the goods defraud
themselves another of
or in the his Here, there is no showing that Bicol Gas has
wrapping of legitimate
the packages been giving its LPG tanks the general appearance of
trade, or any
in which they subsequent the tanks of Petrons Gasul. As already stated, the
are vendor of
contained, or such goods truckfull of Bicol Gas tanks that the KPE manager
the devices or any agent arrested on a road in Sorsogon just happened to have
or words of any
thereon, or vendor mixed up with them one authentic Gasul tank that
in any other engaged in belonged to Petron.
feature of selling such
 declined the offer to swap cylinders for the reason he took part in the same or gave his consent to its

that the owners wanted to send their captured commission, whether by action or inaction.
The only point left is the question of the
cylinders to Batangas. The Court of Appeals seized on
liability of the stockholders and members of the
this as evidence that the employees of Bicol Gas
board of directors of Bicol Gas with respect to the
acted under the direct orders of its owners and that The finding of the Court of Appeals that the
charge of unlawfully filling up a steel cylinder or tank
the owners of Bicol Gas have full control of the employees could not have committed the crimes
that belonged to Petron. The Court of Appeals ruled
operations of the business.[16] without the consent, [abetment], permission, or
that they should be charged along with the Bicol Gas
participation of the owners of Bicol Gas[18] is a
employees who were pointed to as directly involved
sweeping speculation especially since, as
in overt acts constituting the offense.
The owners of a corporate organization are demonstrated above, what was involved was just

its stockholders and they are to be distinguished one Petron Gasul tank found in a truck filled with

from its directors and officers. The petitioners here, Bicol Gas tanks.Although the KPE manager heard
Bicol Gas is a corporation. As such, it is an
with the exception of Audie Llona, are being charged petitioner Llona say that he was going to consult the
entity separate and distinct from the persons of its
in their capacities as stockholders of Bicol Gas. But owners of Bicol Gas regarding the offer to swap
officers, directors, and stockholders. It has been
the Court of Appeals forgets that in a corporation, additional captured cylinders, no indication was
held, however, that corporate officers or employees,
the management of its business is generally vested in given as to which Bicol Gas stockholders Llona
through whose act, default or omission the
its board of directors, not its consulted. It would be unfair to charge all the
corporation commits a crime, may themselves be
stockholders.[17] Stockholders are basically investors stockholders involved, some of whom were proved
individually held answerable for the crime.[15]
in a corporation. They do not have a hand in running to be minors.[19] No evidence was presented

the day-to-day business operations of the establishing the names of the stockholders who were

corporation unless they are at the same time charged with running the operations of Bicol
Jose claimed in his affidavit that, when he
directors or officers of the corporation. Before a Gas. The complaint even failed to allege who among
negotiated the swapping of captured cylinders with
stockholder may be held criminally liable for acts the stockholders sat in the board of directors of the
Bicol Gas, its manager, petitioner Audie Llona,
committed by the corporation, therefore, it must be company or served as its officers.
claimed that he would be consulting with the owners
shown that he had knowledge of the criminal act
of Bicol Gas about it. Subsequently, Bicol Gas
committed in the name of the corporation and that
 The Court of Appeals of course specifically F. Espiritu, Rolando M. Mirabuna, Hermilyn A.

mentioned petitioner stockholder Manuel C. Espiritu, Mirabuna, Kim Roland A. Mirabuna, Kaye Ann A.

Jr. as the registered owner of the truck that the KPE Mirabuna, Ken Ryan A. Mirabuna, Juanito P. De

manager brought to the police for investigation Castro, Geronima A. Almonite and Manuel C. Dee

because that truck carried a tank of Petron Gasul. But are ORDERED excluded from the charge.

the act that R.A. 623 punishes is the unlawful filling

up of registered tanks of another. It does not punish

the act of transporting such tanks. And the complaint SO ORDERED.

did not allege that the truck owner connived with

those responsible for filling up that Gasul tank with

Bicol Gas LPG.

WHEREFORE, the Court REVERSES and

SETS ASIDE the Decision of the Court of Appeals in

CA-G.R. SP 87711 dated October 17, 2005 as well as

its Resolution dated January 6, 2006, the Resolutions

of the Secretary of Justice dated March 11, 2004 and

August 31, 2004, and the Order of the Office of the

Regional State Prosecutor, Region V, dated February

19, 2003. The Court REINSTATES the Resolution of

the Office of the Provincial Prosecutor of Sorsogon in

I.S. 2001-9231 (inadvertently referred in the

Resolution itself as I.S. 2001-9234), dated February

26, 2002. The names of petitioners Manuel C.

Espiritu, Jr., Freida F. Espititu, Carlo F. Espiritu, Rafael

 SECOND DIVISION
dated 31 March 2000, acknowledged that it owed
petitioner the abovementioned amounts.[5]
JAIME U. GOSIACO, G.R. No. 173807 Before us is a Rule 45 petition[1] which
Petitioner,
Present: seeks the reversal of the Decision[2] of the Court of

Appeals in CA-GR No. 29488. The Court of Appeals'

Upon maturity of the ASB checks, petitioner went to
QUISUMBING, J.,
- versus - Chairperson, decision affirmed the decision[3] of the Regional Trial
the DBS Bank San Juan Branch to deposit the two (2)
CARPIO MORALES, Court of Pasig, Branch 68 in Criminal Case No.
TINGA, checks. However, upon presentment, the checks were
VELASCO, JR., and 120482. The RTC's decision reversed the
BRION, JJ. dishonored and payments were refused because of a
LETICIA CHING and EDWIN decision[4] of the Metropolitan Trial Court of San
stop payment order and for insufficiency of funds.
CASTA,
Juan, Branch 58 in Criminal Case No. 70445 which
Respondents. Promulgated: Petitioner informed respondents, through letters dated
involved a charge of violation of B.P. Blg. 22 against
April 16, 2009 6 and 10 April 2000,[6] about the dishonor of the
respondents Leticia Ching (Ching) and Edwin Casta
checks and demanded replacement checks or the
x--------------------------------------------------------------
-------------------x (Casta).
return of the money placement but to no avail. Thus,

petitioner filed a criminal complaint for violation of

On 16 February 2000, petitioner Jaime Gosiaco
DECISION
B.P. Blg. 22 before the Metropolitan Trial Court of
(petitioner) invested P8,000,000.00 with ASB
TINGA, J.:
San Juan against the private respondents.
Holdings, Inc. (ASB) by way of loan. The money was

The right to recover due and demandable pecuniary
obligations incurred by juridical persons such as
corporations cannot be impaired by procedural rules.
Our rules of procedure governing the litigation of
criminal actions for violation of Batas Pambansa Blg.
22 (B.P. 22) have given the appearance of impairing
such substantive rights, and we take the opportunity
loaned to ASB for a period of 48 days with interest at
Ching was arraigned and tried while Casta remained
10.5% which is equivalent to P112,000.00. In
at large. Ching denied liability and claimed that she
exchange, ASB through its Business Development
was a mere employee of ASB. She asserted that she
Operation Group manager Ching, issued DBS checks
did not have knowledge as to how much money ASB
no. 0009980577 and 0009980578 for P8,000,000.00
had in the banks. Such responsibility, she claimed
and P112,000.00 respectively. The checks, both
belonged to another department.
signed by Ching, were drawn against DBS Bank

herein to assert the necessary clarifications. Makati Head Office branch. ASB, through a letter
On 15 December 2000, petitioner moved[7] that ASB

and its president, Luke Roxas, be impleaded as party

defendants. Petitioner, then, paid the corresponding
docket fees. However, the MTC denied the motion as
the case had already been submitted for final
decision.[8]
On 8 February 2001, the MTC acquitted Ching of
criminal liability but it did not absolve her from civil
liability. The MTC ruled that Ching, as a corporate
officer of ASB, was civilly liable since she was a
signatory to the checks.[9]
Both petitioner and Ching appealed the ruling to the
RTC. Petitioner appealed to the RTC on the ground
that the MTC failed to hold ASB and Roxas either
jointly or severally liable with Ching. On the other
hand, Ching moved for a reconsideration which was
subsequently denied. Thereafter, she filed her notice
of appeal on the ground that she should not be held
civilly liable for the bouncing checks because they
were contractual obligations of ASB.
On 12 July 2005, the RTC rendered its decision
sustaining Ching's appeal. The RTC affirmed the
MTCs ruling which denied the motion to implead
ASB and Roxas for lack of jurisdiction over their
persons. The RTC also exonerated Ching from civil Hence this petition.
liability and ruled that the subject obligation fell
squarely on ASB. Thus, Ching should not be held Petitioner raised the following issues: (1) is a
civilly liable.[10] corporate officer who signed a bouncing check civilly
liable under B.P. Blg. 22; (2) can a corporation be
Petitioner filed a petition for review with the Court of impleaded in a B.P. Blg. 22 case; and (3) is there a
Appeals on the grounds that the RTC erred in basis to pierce the corporate veil of ASB?
absolving Ching from civil liability; in upholding the
refusal of the MTC to implead ASB and Roxas; and B.P. Blg. 22 is popularly known as the Bouncing
in refusing to pierce the corporate veil of ASB and Checks Law. Section 1 of B.P. Blg. 22 provides:
hold Roxas liable.
xxx xxx xxx
Where the check is
drawn by a
corporation, company
On 19 July 2006, the Court of Appeals affirmed the or entity, the person or
persons, who actually
decision of the RTC and stated that the amount
signed the check in
petitioner sought to recover was a loan made to ASB behalf of such drawer
shall be liable under
and not to Ching. Roxas testimony further bolstered this Act.
the fact that the checks issued by Ching were for and
in behalf of ASB. The Court of Appeals ruled that
ASB cannot be impleaded in a B.P. Blg. 22 case since
it is not a natural person and in the case of Roxas, he
B.P. Blg. 22 was enacted to address the
was not the subject of a preliminary investigation.
rampant issuance of bouncing checks as payment for
Lastly, the Court of Appeals ruled that there was no
pre-existing obligations. The circulation of bouncing
need to pierce the corporate veil of ASB since none of
checks adversely affected confidence in trade and
the requisites were present.[11]
commerce. The State criminalized such practice act and not his personal act.[19] As we held in Llamado We recognize though the bind entwining
because it was deemed injurious to public v. Court of Appeals:[20] the petitioner. The records clearly show that it is ASB

interests[12] and was found to be pernicious and Petitioner's argument that he is civilly obligated to petitioner. In the various stages
should not be held personally
inimical to public welfare.[13] B.P. Blg. 22 punishes of this case, petitioner has been proceeding from the
liable for the amount of the
the act of making and issuing bouncing checks. It is check because it was a check of
the Pan Asia Finance
the act itself of issuing the checks which is Corporation and he signed the
same in his capacity as
considered malum prohibitum. The law is an offense Treasurer of the corporation, is premise that he is unable to pursue a separate civil
also untenable. The third
against public order and not an offense against action against ASB itself for the recovery of the
paragraph of Section 1 of BP
property.[14] It penalizes the issuance of a check Blg. 22 states: Where the check amounts due from the subject checks. From this
is drawn by a corporation,
without regard to its purpose. It covers all types of company or entity, the person premise, petitioner sought to implead ASB as a
or persons who actually signed
checks.[15] Even checks that were issued as a form of the check in behalf of such defendant to the B.P. Blg. 22 case, even if such case
deposit or guarantee were held to be within the ambit drawer shall be liable under
this Act. is criminal in nature.[22]
of B.P. Blg. 22.[16]
The general rule is that a corporate officer who issues

a bouncing corporate check can only be held civilly What supplied the notion to the petitioner that he was
When a corporate officer issues a worthless unable to pursue a separate civil action against ASB?
liable when he is convicted. In the recent case
check in the corporate name he may be held He cites the Revised Rules on Criminal Procedure,
of Bautista v. Auto Plus Traders Inc.,[21] the Court
personally liable for violating a penal statute.[17] The particularly the provisions involving B.P. Blg. 22
ruled decisively that the civil liability of a corporate
statute imposes criminal penalties on anyone who cases, which state that:
officer in a B.P. Blg. 22 case is extinguished with the
Rule 111, Section 1Institution of
with intent to defraud another of money or property,
criminal liability. We are not inclined through this criminal and civil action.
draws or issues a check on any bank with knowledge
case to revisit so recent a precedent, and the rule xxx
that he has no sufficient funds in such bank to meet
of stare decisis precludes us to discharge Ching of
(b) The criminal action for
the check on presentment.[18] Moreover, the personal violation of Batas Pambansa
any civil liability arising from the B.P. Blg. 22 case
Blg. 22 shall be deemed to
liability of the corporate officer is predicated on the
against her, on account of her acquittal in the criminal include the corresponding civil
principle that he cannot shield himself from liability action. No reservation to file
charge. such civil action separately shall
from his own acts on the ground that it was a corporate be allowed.
 Upon filing of the aforesaid joint
criminal and civil actions, the
offended party shall pay in full
the filing fees based on the
amount of the check involved,
which shall be considered as the
actual damages claimed. Where
the complainant or information
also seeks to recover liquidated,
moral, nominal, temperate or
exemplary damages, the
offended party shall pay the
filing fees based on the amounts
alleged therein. If the amounts
are not so alleged but any of
these damages are subsequently
awarded by the court, the filing
fees based on the amount
awarded shall constitute a first
lien on the judgment.
Where the civil action has been
filed separately and trial thereof
has not yet commenced, it may
be consolidated with the
criminal action upon application
with the court trying the latter
case. If the application is
granted, the trial of both actions
shall proceed in accordance with
section 2 of this Rule governing
consolidation of the civil and
criminal actions.[23]
We are unable to agree with petitioner that he is
entitled to implead ASB in the B.P. Blg. 22 case, or
any other corporation for that matter, even if the Rules
require the joint trial of both the criminal and civil
liability. A basic maxim in statutory construction is
that the interpretation of penal laws is strictly
construed against the State and liberally construed
against the accused. Nowhere in B.P. Blg. 22 is it
provided that a juridical person may be impleaded as
an accused or defendant in the prosecution for
violations of that law, even in the litigation of the civil
aspect thereof.
Nonetheless, the substantive right of a creditor to
recover due and demandable obligations against a
debtor-corporation cannot be denied or diminished by
a rule of procedure. Technically, nothing in Section
1(b) of Rule 11 prohibits the reservation of a separate
civil action against the juridical person on whose
behalf the check was
issued. What the rules prohibit is the reservation of a
separate civil
action against the natural person charged with
violating B.P. Blg. 22, including such corporate
officer who had signed the bounced check.
In theory the B.P. Blg. 22 criminal liability
of the person who issued the bouncing check in behalf
of a corporation stands independent of the civil
liability of the corporation itself, such civil liability
arising from the Civil Code. B.P. Blg. 22 itself fused
this criminal liability of the signer of the check in
behalf of the corporation with the corresponding civil
liability of the corporation itself by allowing the
complainant to recover such civil liability not from
the corporation, but from the person who signed the
check in its behalf. Prior to the amendments to our
rules on criminal procedure, it though clearly was
permissible to pursue the criminal liability against the
signatory, while going after the corporation itself for
the civil liability.
However, with the insistence under the
amended rules that the civil and criminal liability
attaching to the bounced check be pursued jointly, the
previous option to directly pursue the civil liability
against the person who incurred the civil obligationthe
corporation itselfis no longer that clear. In theory, the
implied institution of the civil case into the criminal
case for B.P. Blg. 22 should not affect the civil
liability of the corporation for the same check, since
such implied institution concerns the civil liability of
the signatory, and not of the corporation.
Let us pursue this point further. B.P. Blg. 22
imposes a distinct civil liability on the signatory of the
check which is distinct from the civil liability of the
corporation for the amount represented from the
check. The civil liability attaching to the signatory
arises from the wrongful act of signing the check
despite the insufficiency of funds in the account,
while the civil liability attaching to the corporation
is itself the very obligation covered by the check or
the consideration for its execution. Yet these civil
liabilities are mistaken to be indistinct. The
confusion is traceable to the singularity of the
amount of each.
If we conclude, as we should, that under the
current Rules of Criminal Procedure, the civil action
that is impliedly instituted in the B.P. Blg. 22 action
is only the civil liability of the signatory, and not that
of the corporation itself, the distinctness of the cause
of action against the signatory and that against the
corporation is rendered beyond dispute. It follows that
the actions involving these liabilities should be
adjudged according to their respective standards and
merits. In the B.P. Blg. 22 case, what the trial court
should determine whether or not the signatory had
signed the check with knowledge of the insufficiency
of funds or credit in the bank account, while in the
civil case the trial court should ascertain whether or
not the obligation itself
is valid and demandable. The litigation of both
questions could, in theory, proceed independently and
simultaneously without being ultimately conclusive
on one or the other.
It might be argued that under the current
rules, if the signatory were made liable for the amount
of the check by reason of the B.P. Blg. 22 case, such
signatory would have the option of recovering the
same amount from the corporation. Yet that prospect
does not ultimately satisfy the ends of justice. If the
signatory does not have sufficient assets to answer for
the amount of the checka distinct possibility
considering the occasional large-scale transactions
engaged in by corporations the corporation would not
be subsidiarily liable to the complainant, even if it in
truth the controversy, of which the criminal case is
just a part, is traceable to the original obligation of the
corporation. While the Revised Penal Code imposes
subsidiary civil liability to corporations for criminal
acts engaged in by their employees in the discharge of
their duties, said subsidiary liability applies only
to felonies,[24] and not to crimes penalized by special
laws such as B.P. Blg. 22. And nothing in B.P. Blg.
22 imposes such subsidiary liability to the corporation
in whose name the check is actually issued. Clearly
then, should the check signatory be unable to pay the
obligation incurred by the corporation, the
complainant would be bereft of remedy unless the
right of action to collect on the liability of the
corporation is recognized and given flesh.
There are two prevailing concerns should
civil recovery against the corporation be pursued even
as the B.P. Blg. 22 case against the signatory remains
extant. First, the possibility that the plaintiff might be
awarded the amount of the check in both the B.P. Blg.
22 case and in the civil action against the corporation.
For obvious reasons, that should not be permitted. In a similar vein and for a similar reason, we likewise
Considering that petitioner herein has no chance to find that petitioner should not be barred by

recover the amount of the check through the B.P. Blg. prescription should he file the civil action as the

22 case, we need not contend with that possibility period should not run from the date the checks were

through this case. Nonetheless, as a matter of issued but from the date this decision attains finality.

prudence, it is best we refer the matter to the The courts should not be bound strictly by the statute

Committee on Rules for the formulation of proper of limitations or the doctrine of laches when to do so,

guidelines to prevent that possibility. manifest wrong or injustice would result.[25]

The other concern is over the payment of WHEREFORE, the petition is DENIED, without

filing fees in both the B.P. Blg. 22 case and the civil prejudice to the right of petitioner Jaime U. Gosiaco

action against the corporation. Generally, we see no to pursue an independent civil action against ASB

evil or cause for distress if the plaintiff were made to Holdings Inc. for the amount of the subject checks, in

pay filing fees based on the amount of the check in accordance with the terms of this decision. No

both the B.P. Blg. 22 case and the civil action. After pronouncements as to costs.
all, the plaintiff therein made the deliberate option to

file two separate cases, even if the recovery of the Let a copy of this Decision be REFERRED to the

amounts of the check against the corporation could Committee on Revision of the Rules for the
evidently be pursued through the civil action alone. formulation of the formal rules of procedure to

govern the civil action for the recovery of the

Nonetheless, in petitioners particular case, amount covered by the check against the juridical
considering the previous legal confusion on whether person which issued it.
he is authorized to file the civil case against ASB, he SO ORDERED.

should, as a matter of equity, be exempted from

paying the filing fees based on the amount of the

checks should he pursue the civil action against ASB.

 FIRST DIVISION A
Before the Court is a petition for review
R
T on certiorari of the Decision[1] of the Court of
ALFREDO CHING, G. R. No. 164317 I Appeals (CA) in CA-G.R. SP No. 57169 dismissing
Petitioner, N
Present: E the petition for certiorari, prohibition and mandamus
P Z filed by petitioner Alfredo Ching, and its
A , [2] dated June 28, 2004 denying the motion
N Resolution
C
G A for reconsideration thereof.
A L
N L
I E Petitioner was the Senior Vice-President of Philippine
B J
Blooming Mills, Inc. (PBMI). Sometime in
A O
N , September to October 1980, PBMI, through
, S petitioner, applied with the Rizal Commercial
R
C . Banking Corporation (respondent bank) for the
. , issuance of commercial letters of credit to finance its
J a
[3]
. n importation of assorted goods.
, d
C CHICO-NAZARIO, JJ. Respondent bank approved the application,
h
a THE SECRETARY OF JUSTICE, and irrevocable letters of credit were issued in favor
i ASST. CITY PROSECUTOR of petitioner. The goods were purchased and delivered
r CECILYN BURGOS-VILLAVERT,
in trust to PBMI. Petitioner signed 13 trust
p JUDGE EDGARDO SUDIAM of Promulgated:
e the Regional Trial Court, Manila, receipts[4] as surety, acknowledging delivery of the
r Branch 52; RIZAL COMMERCIAL February 6, following goods:
s 2006
T/R Date Granted Maturity Date
o BANKING CORP. and THE PEOPLE
Nos. Principa
n OF THE PHILIPPINES,
, Respondents.
1845 12-05-80 03-05-81 P1,596,470
- versus - YNARES-SANTIAGO, x--------------------------------------------------------------
---------------------------x
A
U
S 1853 12-08-80 03-06-81 P198,150
T
R DECISION 1824 11-28-80 02-26-81 P707,879
I CALLEJO, SR., J.:
A 1798 11-21-80 02-19-81 P835,526
-
M 1808 11-21-80 02-19-81 P370,332
 High Fired Refractory
demands. Thus, the bank filed a criminal complaint In the meantime, the Court rendered
2042 01-30-81 04-30-81 P469,669.29 Nozzle Bricks
for estafa[6] against petitioner
Synthetic in the Office of the City
Graphite judgment in Allied Banking Corporation v.
1801 11-21-80 02-19-81 P2,001,715.17
Prosecutor of Manila. Electrode [with] tapered Ordoez,[11] holding that the penal provision of P.D.
pitch filed nipples
3,000 pcs. (15 bundles No. 115 encompasses any act violative of an
1857 12-09-80 03-09-81 P197,843.61After the
calorized requisite preliminary
lance pipes [)] obligation covered by the trust receipt; it is not limited
investigation, the City
SpareProsecutor partsfound for
probable
to transactions involving goods which are to be sold
1895 12-17-80 03-17-81 P67,652.04 Spectrophotometer
cause estafa under Article 315, paragraph 1(b) of the
1911 12-22-80 03-20-81 P91,497.85 50 pcs. Ingot moulds (retailed), reshipped, stored or processed as a
2041 01-30-81 04-30-81 Revised Penal Code,50
P91,456.97 inpcs.
relation
Ingottomoulds
Presidential Decree
component of a product ultimately sold. The Court
2099 02-10-81 05-11-81 P66,162.26
(P.D.) 8 pcs. Kubota
No. 115, otherwise knownRolls for Trust
as the
also ruled that the non-payment of the amount
rolling mills
Receipts Law. Thirteen (13) Informations were filed
2100 02-10-81 05-12-81 P210,748.00 Spare parts for covered by a trust receipt is an act violative of the
against the petitionerLacolaboratory
before the Regional Trial Court
obligation of the entrustee to pay.[12]
[5]
(RTC) of Manila. Equipment
The cases were docketed as
Criminal Cases No. 86-42169 to 86-42181, raffled to On February 27, 1995, respondent bank re-
Branch 31 of said court. filed the criminal complaint for estafa against
Under the receipts, petitioner agreed to hold the goods
petitioner before the Office of the City Prosecutor of
in trust for the said bank, with authority to sell but not Petitioner appealed the resolution of the City
Manila. The case was docketed as I.S. No. 95B-
by way of conditional sale, pledge or otherwise; and Prosecutor to the then Minister of Justice. The appeal
07614.
in case such goods were sold, to turn over the was dismissed in a Resolution[7] dated March 17,
proceeds thereof as soon as received, to apply against 1987, and petitioner moved for its reconsideration. Preliminary investigation ensued. On December 8,
the relative acceptances and payment of other On December 23, 1987, the Minister of Justice 1995, the City Prosecutor ruled that there was no
indebtedness to respondent bank. In case the goods granted the motion, thus reversing the probable cause to charge petitioner with violating
remained unsold within the specified period, the previous resolution finding probable cause against P.D. No. 115, as petitioners liability was only civil,
goods were to be returned to respondent bank without petitioner.[8] The City Prosecutor was ordered to not criminal, having signed the trust receipts as
any need of demand. Thus, said goods, manufactured move for the withdrawal of the Informations. surety.[13] Respondent bank appealed the resolution to
products or proceeds thereof, whether in the form of the Department of Justice (DOJ) via petition for
money or bills, receivables, or accounts separate and This time, respondent bank filed a motion
review, alleging that the City Prosecutor erred in
capable of identification were respondent banks for reconsideration, which, however, was denied
ruling:
property. on February 24, 1988.[9] The RTC, for its part, granted
1. That there is no evidence to
the Motion to Quash the Informations filed by
show that respondent participated
When the trust receipts matured, petitioner petitioner on the ground that the material allegations in the
failed to return the goods to respondent bank, or to therein did not amount to estafa.[10] misappropriation of the goods
subject of the trust receipts;
return their value amounting to P6,940,280.66 despite
 2. That the respondent is a mere ACTING OPPRESSIVELY
also as its surety; hence, he could be proceeded
surety of the trust receipts; and AGAINST ALFREDO CHING
against in two (2) ways: first, as surety as determined WHEN THEY ALLOWED HIS
3. That the liability of the by the Supreme Court in its decision in Rizal PROSECUTION DESPITE THE
respondent is only civil in FACT THAT NO EVIDENCE
nature.[14] Commercial Banking Corporation v. Court of HAD BEEN PRESENTED TO
Appeals;[17] and second, as the corporate official PROVE HIS PARTICIPATION
IN THE ALLEGED
responsible for the offense under P.D. No. 115, via TRANSACTIONS.
On July 13, 1999, the Secretary of Justice
criminal prosecution. Moreover, P.D. No. 115
issued Resolution No. 250[15] granting the petition and 2. THE RESPONDENT
explicitly allows the prosecution of corporate officers SECRETARY OF JUSTICE
reversing the assailed resolution of the City
without prejudice to the civil liabilities arising from COMMITTED AN ACT IN
Prosecutor. According to the Justice Secretary, the GRAVE ABUSE OF
the criminal offense. Thus, according to the Justice
petitioner, as Senior Vice-President of DISCRETION AND IN
Secretary, following Rizal Commercial Banking EXCESS OF HIS
PBMI, executed the 13 trust receipts and as such, was JURISDICTION WHEN THEY
Corporation, the civil liability imposed is clearly
the one responsible for the offense. Thus, the CONTINUED PROSECUTION
separate and distinct from the criminal liability of the OF THE PETITIONER
execution of said receipts is enough to indict the DESPITE THE LENGTH OF
accused under P.D. No. 115.
petitioner as the official responsible for violation of TIME INCURRED IN THE
TERMINATION OF THE
P.D. No. 115. The Justice Secretary also declared that Conformably with the Resolution of the PRELIMINARY
petitioner could not contend that P.D. No. 115 covers Secretary of Justice, the City Prosecutor filed 13 INVESTIGATION THAT
only goods ultimately destined for sale, as this issue SHOULD JUSTIFY THE
Informations against petitioner for violation of P.D. DISMISSAL OF THE INSTANT
had already been settled in Allied Banking No. 115 before the RTC of Manila. The cases were CASE.
Corporation v. Ordoez,[16] where the Court ruled that docketed as Criminal Cases No. 99-178596 to 99-
3. THE RESPONDENT
P.D. No. 115 is not limited to transactions in goods 178608 and consolidated for trial before Branch 52 of SECRETARY OF JUSTICE
which are to be sold (retailed), reshipped, stored or AND ASSISTANT CITY
said court. Petitioner filed a motion for
PROSECUTOR ACTED IN
processed as a component of a product ultimately sold reconsideration, which the Secretary of Justice denied GRAVE ABUSE OF
but covers failure to turn over the proceeds of the sale in a Resolution[18] dated January 17, 2000. DISCRETION AMOUNTING
TO AN EXCESS OF
of entrusted goods, or to return said goods if unsold or
JURISDICTION WHEN THEY
not otherwise disposed of in accordance with the Petitioner then filed a petition CONTINUED THE
for certiorari, prohibition and mandamus with the PROSECUTION OF THE
terms of the trust receipts.
PETITIONER DESPITE LACK
CA, assailing the resolutions of the Secretary of OF SUFFICIENT BASIS.[19]
The Justice Secretary further stated that the Justice on the following grounds:
respondent bound himself under the terms of the trust
1. THE RESPONDENTS ARE In his petition, petitioner incorporated a certification
receipts not only as a corporate official of PBMI but ACTING WITH AN UNEVEN stating that as far as this Petition is concerned, no
HAND AND IN FACT, ARE
 C.
action or proceeding in the Supreme Court, the Court Ordoez;[22] and (c) petitioner was estopped from
of Appeals or different divisions thereof, or any THE PRESENT SPECIAL raising the
tribunal or agency. It is finally certified that if the CIVIL ACTION FOR
CERTIORARI, PROHIBITION
affiant should learn that a similar action or proceeding AND MANDAMUS IS NOT
has been filed or is pending before the Supreme Court, THE PROPER MODE OF City Prosecutors delay in the final disposition of the
REVIEW FROM THE
the Court of Appeals, or different divisions thereof, of RESOLUTION OF THE preliminary investigation because he failed to do so in
any other tribunal or agency, it hereby undertakes to DEPARTMENT OF JUSTICE. the DOJ.
THE PRESENT PETITION
notify this Honorable Court within five (5) days from MUST THEREFORE BE Thus, petitioner filed the instant petition,
such notice.[20] DISMISSED.[21] alleging that:
In its Comment on the petition, the Office
of the Solicitor General alleged that - On April 22, 2004, the CA rendered I
judgment dismissing the petition for lack of merit, and THE COURT OF APPEALS
A.
ERRED WHEN IT DISMISSED
THE HONORABLE on procedural grounds. On the procedural issue, it THE PETITION ON THE
SECRETARY OF JUSTICE
ruled that (a) the certification of non-forum shopping GROUND THAT THE
CORRECTLY RULED THAT
CERTIFICATION OF NON-
PETITIONER ALFREDO executed by petitioner and incorporated in the petition FORUM SHOPPING
CHING IS THE OFFICER
was defective for failure to comply with the first two INCORPORATED THEREIN
RESPONSIBLE FOR THE
WAS DEFECTIVE.
OFFENSE CHARGED AND of the three-fold undertakings prescribed in Rule 7,
THAT THE ACTS OF
Section 5 of the Revised Rules of Civil Procedure; II
PETITIONER FALL WITHIN
THE AMBIT OF VIOLATION and (b) the petition for certiorari, prohibition and
THE COURT OF APPEALS
OF P.D. [No.] 115 IN
mandamus was not the proper remedy of the ERRED WHEN IT RULED
RELATION TO ARTICLE 315,
THAT NO GRAVE ABUSE OF
PAR. 1(B) OF THE REVISED petitioner.
DISCRETION AMOUNTING
PENAL CODE.
TO LACK OR EXCESS OF
On the merits of the petition, the CA ruled that the JURISDICTION WAS
B.
assailed resolutions of the Secretary of Justice were COMMITTED BY THE
SECRETARY OF JUSTICE IN
THERE IS NO MERIT IN correctly issued for the following reasons: (a) COMING OUT WITH THE
PETITIONERS CONTENTION
petitioner, being the Senior Vice-President of PBMI ASSAILED RESOLUTIONS.[23]
THAT EXCESSIVE DELAY
HAS MARRED THE and the signatory to the trust receipts, is criminally
CONDUCT OF THE The Court will delve into and resolve the
PRELIMINARY liable for violation of P.D. No. 115; (b) the issue
issues seriatim.
INVESTIGATION OF THE raised by the petitioner, on whether he violated P.D.
CASE, JUSTIFYING ITS
DISMISSAL. No. 115 by his actuations, had already been resolved The petitioner avers that the CA erred in
and laid to rest in Allied Bank Corporation v. dismissing his petition on a mere technicality. He

claims that the rules of procedure should be used to
promote, not frustrate, substantial justice. He insists
that the Rules of Court should be construed liberally
especially when, as in this case, his substantial rights
are adversely affected; hence, the deficiency in his
certification of non-forum shopping should not result
in the dismissal of his petition.
The Office of the Solicitor General (OSG)
takes the opposite view, and asserts that indubitably,
the certificate of non-forum shopping incorporated in
the petition before the CA is defective because it
failed to disclose essential facts about pending actions
concerning similar issues and parties. It asserts that
petitioners failure to comply with the Rules of Court
is fatal to his petition. The OSG cited Section 2, Rule
42, as well as the ruling of this Court in Melo v. Court
of Appeals.[24]
We agree with the ruling of the CA that the
certification of non-forum shopping petitioner
incorporated in his petition before the appellate court
is defective. The certification reads:
It is further certified
that as far as this Petition is
concerned, no action or
proceeding in the Supreme Court,
the Court of Appeals or different
divisions thereof, or any tribunal
or agency.
It is finally certified
that if the affiant should learn that
a similar action or proceeding has
been filed or is pending before the
Supreme Court, the Court of
Appeals, or different divisions
thereof, of any other tribunal or
agency, it hereby undertakes to
notify this Honorable Court
within five (5) days from such
notice.[25]
Under Section 1, second paragraph of Rule 65 of the
Revised Rules of Court, the petition should be
accompanied by a sworn certification of non-forum
shopping, as provided in the third paragraph of
Section 3, Rule 46 of said Rules. The latter provision
reads in part:
SEC. 3. Contents and filing of
petition; effect of non-compliance
with requirements. The petition
shall contain the full names and
actual addresses of all the
petitioners and respondents, a
concise statement of the matters
involved, the factual background
of the case and the grounds relied
upon for the relief prayed for.
xxx
The petitioner shall also submit
together with the petition a sworn
certification that he has not
theretofore commenced any other
action involving the same issues
in the Supreme Court, the Court
of Appeals or different divisions
thereof, or any other tribunal or
agency; if there is such other
action or proceeding, he must
state the status of the same; and if
he should thereafter learn that a
similar action or proceeding has
been filed or is pending before the
Supreme Court, the Court of
Appeals, or different divisions
thereof, or any other tribunal or
agency, he undertakes to
promptly inform the aforesaid
courts and other tribunal or
agency thereof within five (5)
days therefrom. xxx
Compliance with the certification against
forum shopping is separate from and independent of
the avoidance of forum shopping itself. The
requirement is mandatory. The failure of the
petitioner to comply with the foregoing requirement
shall be sufficient ground for the dismissal of the
petition without prejudice, unless otherwise
provided.[26]
Indubitably, the first paragraph of petitioners
certification is incomplete and
unintelligible. Petitioner failed to certify that he had
not heretofore commenced any other action involving
the same issues in the Supreme Court, the Court of
Appeals or the different divisions thereof or any other
tribunal or agency as required by paragraph 4, Section
3, Rule 46 of the Revised Rules of Court.
We agree with petitioners contention that the
certification is designed to promote and facilitate the
orderly administration of justice, and therefore,
should not be interpreted with absolute literalness. In
his works on the Revised Rules of Civil Procedure,
former Supreme Court Justice Florenz Regalado
states that, with respect to the contents of the
 civil because he signed the said prejudice to
certification which the pleader may prepare, the rule
trust receipts merely as a xxx the civil
of substantial compliance may be availed surety and not as the liabilities
of.[27] However, there must be a special circumstance entrustee. These assertions are, arising from
however, too dull that they cannot the criminal
or compelling reason which makes the strict even just dent the findings of the offense.
application of the requirement clearly unjustified. The respondent Secretary, viz:
There is no dispute that
instant petition has not alleged any such extraneous it was the respondent, who as
circumstance. Moreover, as worded, the certification x x x it is senior vice-president of PBM,
apropos to quote executed the thirteen (13) trust
cannot even be regarded as substantial compliance section 13 of PD 115 receipts. As such, the law points
with the procedural requirement. Thus, the CA was which states in part, to him as the official responsible
viz: for the offense. Since a
not informed whether, aside from the petition before
corporation cannot be proceeded
it, petitioner had commenced any other action against criminally because it
involving the same issues in other tribunals. xx cannot commit crime in which
x If the personal violence or malicious
violation or intent is required, criminal action
On the merits of the petition, the CA ruled that the offense is is limited to the corporate agents
petitioner failed to establish that the Secretary of committed guilty of an act amounting to a
by a crime and never against the
Justice committed grave abuse of discretion in finding corporation, corporation itself (West Coast
probable cause against the petitioner for violation partnership, Life Ins. Co. vs. Hurd, 27 Phil.
association 401; Times, [I]nc. v. Reyes, 39
of estafa under Article 315, paragraph 1(b) of the or other SCRA 303). Thus, the execution
Revised Penal Code, in relation to P.D. No. 115. judicial by respondent of said receipts is
entities, the enough to indict him as the
Thus, the appellate court ratiocinated:
penalty official responsible for violation
Be that as it may, even
provided for of PD 115.
on the merits, the arguments
in this
advanced in support of the
Decree shall Parenthetically,
petition are not persuasive
be imposed respondent is estopped to still
enough to justify the desired
upon the contend that PD 115 covers only
conclusion that respondent
directors, goods which are ultimately
Secretary of Justice gravely
officers, destined for sale and not goods,
abused its discretion in coming
employees or like those imported by PBM, for
out with his assailed Resolutions.
other use in manufacture. This issue
Petitioner posits that, except for
officials or has already been settled in the
his being the Senior Vice-
persons Allied Banking Corporation case,
President of the PBMI, there is no
therein supra, where he was also a party,
iota of evidence that he was
responsible when the Supreme Court ruled
a participes crimines in violating
for the that PD 115 is not limited to
the trust receipts sued upon; and
offense, transactions in goods which are to
that his liability, if at all, is purely
without be sold (retailed), reshipped,
 stored or processed as a Section
and respondent bank is not a trust receipt transaction;
component or a product 13. Penalty
ultimately sold but covers failure (b) he entered into the transaction and was sued in his Clause. The failure
to turn over the proceeds of the capacity as PBMI Senior Vice-President; (c) he never of an entrustee to turn
sale of entrusted goods, or to over the proceeds of
return said goods if unsold or received the goods as an entrustee for PBMI, hence, the sale of the goods,
disposed of in accordance with could not have committed any dishonesty or abused documents or
the terms of the trust receipts. instruments covered
the confidence of respondent bank; and (d) PBMI by a trust receipt to
In regard to the other acquired the goods and used the same in operating its the extent of the
assigned errors, we note that the amount owing to the
respondent bound himself under machineries and equipment and not for resale. entruster or as
the terms of the trust receipts not appears in the trust
only as a corporate official of The OSG, for its part, submits a contrary receipt or to return
PBM but also as its surety. It is said goods,
view, to wit:
evident that these are two (2) documents or
capacities which do not exclude instruments if they
34. Petitioner further
the other. Logically, he can be were not sold or
claims that he is not a person
proceeded against in two (2) disposed of in
responsible for the offense
ways: first, as surety as accordance with the
allegedly because [b]eing charged
determined by the Supreme Court terms of the trust
as the Senior Vice-President of
in its decision in RCBC vs. Court receipt shall
Philippine Blooming Mills (PBM),
of Appeals, 178 SCRA 739; and, constitute the crime
petitioner cannot be held criminally
secondly, as the corporate official of estafa, punishable
liable as the transactions sued upon
responsible for the offense under under the provisions
were clearly entered into in his
PD 115, the present case is an of Article Three
capacity as an officer of the
appropriate remedy under our hundred and fifteen,
corporation and that [h]e never
penal law. paragraph one (b) of
received the goods as an entrustee
Act Numbered Three
for PBM as he never had or took
Moreover, PD 115 thousand eight
possession of the goods nor did he
explicitly allows the prosecution hundred and fifteen,
commit dishonesty nor abuse of
of corporate officers without as amended,
confidence in transacting with
prejudice to the civil liabilities otherwise known as
RCBC. Such argument is bereft of
arising from the criminal offense the Revised Penal
merit.
thus, the civil liability imposed on Code. If the
respondent in RCBC vs. Court of violation or offense
35. Petitioners being a Senior Vice-President
Appeals case is clearly separate is committed by a
of the Philippine Blooming Mills
and distinct from his criminal corporation,
does not exculpate him from any
liability under PD 115.[28] partnership,
liability. Petitioners responsibility
association or other
as the corporate official of PBM
juridical entities,
who received the goods in trust is
the penalty
premised on Section 13 of P.D. No.
Petitioner asserts that the appellate courts ruling is provided for in this
115, which provides:
Decree shall be
erroneous because (a) the transaction between PBMI imposed upon the
 directors, officers, investigation (in that case, the Office of the persons who may be reasonably charged with a crime.
employees or other
officials or persons Ombudsman) acts without or in excess of his Probable cause need not be based on clear and
therein responsible authority and resolves to file an Information despite convincing evidence of guilt, as the investigating
for the offense,
without prejudice to the absence of probable cause, such act may be officer acts upon probable cause of reasonable
the civil liabilities nullified by a writ of certiorari.[32] belief. Probable cause implies probability of guilt and
arising from the
criminal requires more than bare suspicion but less than
offense. (Emphasis Indeed, under Section 4, Rule 112 of the
evidence which would justify a conviction. A finding
supplied) 2000 Rules of Criminal Procedure,[33] the Information
of probable cause needs only to rest on evidence
36. Petitioner having shall be prepared by the Investigating Prosecutor
showing that more likely than not, a crime has been
participated in the negotiations for against the respondent only if he or she finds probable
committed by the suspect.[36]
the trust receipts and having
cause to hold such respondent for trial. The
received the goods for PBM, it was
inevitable that the Investigating Prosecutor acts without or in excess of However, while probable cause should be determined
petitioner is the proper corporate his authority under the Rule if the Information is filed in a summary manner, there is a need to examine the
officer to be proceeded against by
virtue of the PBMs violation of P.D. against the respondent despite absence of evidence evidence with care to prevent material damage to a
No. 115.[29] showing probable cause therefor.[34] If the Secretary potential accuseds constitutional right to liberty and
of Justice reverses the Resolution of the Investigating the guarantees of freedom and fair play[37] and to
The ruling of the CA is correct. Prosecutor who found no probable cause to hold the protect the State from the burden of unnecessary
respondent for trial, and orders such prosecutor to file expenses in prosecuting alleged offenses and holding

In Mendoza-Arce v. Office of the the Information despite the absence of probable cause, trials arising from false, fraudulent or groundless

Ombudsman (Visayas),[30] this Court held that the Secretary of Justice acts contrary to law, without charges.[38]

the acts of a quasi-judicial officer may be assailed by
the aggrieved party via a petition for certiorari and
enjoined (a) when necessary to afford adequate
protection to the constitutional rights of the accused;
(b) when necessary for the orderly administration of
justice; (c) when the acts of the officer are without or
in excess of authority; (d) where the charges are
manifestly false and motivated by the lust for
vengeance; and (e) when there is clearly no prima
facie case against the accused.[31] The Court also
declared that, if the officer conducting a preliminary
authority and/or in excess of authority. Such
In this case, petitioner failed to establish that the
resolution may
Secretary of Justice committed grave abuse of
likewise be nullified in a petition for certiorari under
discretion in issuing the assailed resolutions. Indeed,
Rule 65 of the Revised Rules of Civil Procedure.[35]
he acted in accord with law and the evidence.
A preliminary investigation, designed to secure the
Section 4 of P.D. No. 115 defines a trust
respondent against hasty, malicious and oppressive
receipt transaction, thus:
prosecution, is an inquiry to determine whether (a) a
crime has been committed; and (b) whether there is Section 4. What
constitutes a trust receipt
probable cause to believe that the accused is guilty
transaction. A trust receipt
thereof. It is a means of discovering the person or transaction, within the meaning
of this Decree, is any transaction
by and between a person referred
to in this Decree as the entruster,
and another person referred to in
this Decree as entrustee, whereby
the entruster, who owns or holds
absolute title or security interests
over certain specified goods,
documents or instruments,
releases the same to the
possession of the entrustee upon
the latters execution and delivery
to the entruster of a signed
document called a trust receipt
wherein the entrustee binds
himself to hold the designated
goods, documents or instruments
in trust for the entruster and to sell
or otherwise dispose of the goods,
documents or instruments with
the obligation to turn over to the
entruster the proceeds thereof to
the extent of the amount owing to
the entruster or as appears in the
trust receipt or the goods,
documents or instruments
themselvesif they are unsold or
not otherwise disposed of, in
accordance with the terms and
conditions specified in the trust
receipt, or for other purposes
substantially equivalent to any of
the following:
1. In case of goods or
documents, (a) to sell the goods
or procure their sale; or (b) to
manufacture or process the goods
with the purpose of ultimate
sale; Provided, That, in the case
of goods delivered under trust
receipt for the purpose of
manufacturing or processing
before its ultimate sale, the
entruster shall retain its title over
the goods whether in its original
or processed form until the
entrustee has complied fully with
his obligation under the trust
receipt; or (c) to load, unload,
ship or otherwise deal with them
in a manner preliminary or
necessary to their sale; or
2. In the case of
instruments a) to sell or procure
their sale or exchange; or b) to
deliver them to a principal; or c)
to effect the consummation of
some transactions involving
delivery to a depository or
register; or d) to effect their
presentation, collection or
renewal.
The sale of goods,
documents or instruments by a
person in the business of selling
goods, documents or instruments
for profit who, at the outset of the
transaction, has, as against the
buyer, general property rights in
such goods, documents or
instruments, or who sells the
same to the buyer on credit,
retaining title or other interest as
security for the payment of the
purchase price, does not
constitute a trust receipt
transaction and is outside the
purview and coverage of this
Decree.
An entrustee is one having or taking
possession of goods, documents or instruments under
a trust receipt transaction, and any successor in
interest of such person for the purpose of payment
specified in the trust receipt agreement.[39] The
entrustee is obliged to: (1) hold the goods, documents
or instruments in trust for the entruster and shall
dispose of them strictly in accordance with the terms
and conditions of the trust receipt; (2) receive the
proceeds in trust for the entruster and turn over the
same to the entruster to the extent of the amount
owing to the entruster or as appears on the trust
receipt; (3) insure the goods for their total value
against loss from fire, theft, pilferage or other
casualties; (4) keep said goods or proceeds thereof
whether in money or whatever form, separate and
capable of identification as property of the entruster;
(5) return the goods, documents or instruments in the
event of non-sale or upon demand of the entruster; and
(6) observe all other terms and conditions of the trust
receipt not contrary to the provisions of the decree.[40]
The entruster shall be entitled to the proceeds from the
sale of the goods, documents or instruments released
under a trust receipt to the entrustee to the extent of
the amount owing to the entruster or as appears in the
trust receipt, or to the return of the goods, documents
or instruments in case of non-sale, and to the
enforcement of all other rights conferred on him in the
trust receipt; provided, such are not contrary to the
provisions of the document.[41]
In the case at bar, the transaction between petitioner
and respondent bank falls under the trust receipt
transactions envisaged in P.D. No. 115. Respondent

bank imported the goods and entrusted the same to
PBMI under the trust receipts signed by petitioner, as
entrustee, with the bank as entruster. The agreement
was as follows:
And in consideration
thereof, I/we hereby agree to hold
said goods in trust for the said
BANK as its property with liberty
to sell the same within ____days
from the date of the execution of
this Trust Receipt and for the
Banks account, but without
authority to make any other
disposition whatsoever of the said
goods or any part thereof (or the
proceeds) either by way of
conditional sale, pledge or
otherwise.
I/we agree to keep the
said goods insured to their full
value against loss from fire, theft,
pilferage or other casualties as
directed by the BANK, the sum
insured to be payable in case of
loss to the BANK, with the
understanding that the BANK is,
not to be chargeable with the
storage premium or insurance or
any other expenses incurred on
said goods.
In case of sale, I/we
further agree to turn over the
proceeds thereof as soon as
received to the BANK, to apply
against the relative acceptances
(as described above) and for the
payment of any other
indebtedness of mine/ours to the
BANK. In case of non-sale within
the period specified herein, I/we
agree to return the goods under
this Trust Receipt to the BANK
without any need of demand.
I/we agree to keep the
said goods, manufactured
products or proceeds thereof,
whether in the form of money or
bills, receivables, or accounts
separate and capable of
identification as property of the
BANK.[42]
It must be stressed that P.D. No. 115 is a
declaration by legislative authority that, as a matter of
public policy, the failure of person to turn over the
proceeds of the sale of the goods covered by a trust
receipt or to return said goods, if not sold, is a public
nuisance to be abated by the imposition of penal
sanctions.[43]
The Court likewise rules that the issue of
whether P.D. No. 115 encompasses transactions
involving goods procured as a component of a product
ultimately sold has been resolved in the affirmative
in Allied Banking Corporation v. Ordoez.[44] The law
applies to goods used by the entrustee in the operation
of its machineries and equipment. The non-payment
of the amount covered by the trust receipts or the non-
return of the goods covered by the receipts, if not sold
or otherwise not disposed of, violate the entrustees
obligation to pay the amount or to return the goods to
the entruster.
In Colinares v. Court of Appeals,[45] the
Court declared that there are two possible situations
in a trust receipt transaction. The first is covered by
the provision which refers to money received under
the obligation involving the duty to deliver it
(entregarla) to the owner of the merchandise sold.
The second is covered by the provision which refers
to merchandise received under the obligation
to return it (devolvera) to the owner.[46] Thus, failure
of the entrustee to turn over the proceeds of the sale
of the goods covered by the trust receipts to the
entruster or to return said goods if they were not
disposed of in accordance with the terms of the trust
receipt is a crime under P.D. No. 115, without need of
proving intent to defraud. The law punishes
dishonesty and abuse of confidence in the handling of
money or goods to the prejudice of the entruster,
regardless of whether the latter is the owner or not. A
mere failure to deliver the proceeds of the sale of the
goods, if not sold, constitutes a criminal offense that
causes prejudice, not only to another, but more to the
public interest.[47]
The Court rules that although petitioner
signed the trust receipts merely as Senior Vice-
President of PBMI and had no physical possession of
the goods, he cannot avoid prosecution for violation
of P.D. No. 115.
The penalty clause of the law, Section 13 of
P.D. No. 115 reads:
Section 13. Penalty
Clause. The failure of an
entrustee to turn over the
 proceeds of the sale of the goods,
documents or instruments
covered by a trust receipt to the
extent of the amount owing to the
entruster or as appears in the trust
receipt or to return said goods,
documents or instruments if they
were not sold or disposed of in
accordance with the terms of the
trust receipt shall constitute the
crime of estafa, punishable under
the provisions of Article Three
hundred and fifteen, paragraph
one (b) of Act Numbered Three
thousand eight hundred and
fifteen, as amended, otherwise
known as the Revised Penal
Code. If the violation or offense
is committed by a corporation,
partnership, association or other
juridical entities, the penalty
provided for in this Decree shall
be imposed upon the directors,
officers, employees or other
officials or persons therein
responsible for the offense,
without prejudice to the civil
liabilities arising from the
criminal offense.
The crime defined in P.D. No. 115 is malum
prohibitum but is classified as estafa under paragraph
1(b), Article 315 of the Revised Penal Code,
or estafa with abuse of confidence. It may be
committed by a corporation or other juridical entity or
by natural persons. However, the penalty for the crime
is imprisonment for the periods provided in said
Article 315, which reads:
ARTICLE
315. Swindling (estafa). Any
person who shall defraud another
by any of the means mentioned
hereinbelow shall be punished
by:
1st. The penalty
of prision correccional in its
maximum period to prision
mayor in its minimum period, if
the amount of the fraud is over
12,000 pesos but does not exceed
22,000 pesos; and if such amount
exceeds the latter sum, the
penalty provided in this
paragraph shall be imposed in its
maximum period, adding one
year for each additional 10,000
pesos; but the total penalty which
may be imposed shall not exceed
twenty years. In such cases, and
in connection with the accessory
penalties which may be imposed
and for the purpose of the other
provisions of this Code, the
penalty shall be termed prision
mayor or reclusion temporal, as
the case may be;
2nd. The penalty
of prision correccional in its
minimum and medium periods, if
the amount of the fraud is over
6,000 pesos but does not exceed
12,000 pesos;
3rd. The penalty
of arresto mayor in its maximum
period to prision correccional in
its minimum period, if such
amount is over 200 pesos but
does not exceed 6,000 pesos; and
4th. By arresto
mayor in its medium and
maximum periods, if such
amount does not exceed 200
pesos, provided that in the four
cases mentioned, the fraud be
committed by any of the
following means; xxx
Though the entrustee is a corporation,
nevertheless, the law specifically makes the officers,
employees or other officers or persons responsible for
the offense, without prejudice to the civil liabilities of
such corporation and/or board of directors, officers,
or other officials or employees responsible for the
offense. The rationale is that such officers or
employees are vested with the authority and
responsibility to devise means necessary to ensure
compliance with the law and, if they fail to do so, are
held criminally accountable; thus, they have a
responsible share in the violations of the law.[48]
If the crime is committed by a corporation
or other juridical entity, the directors, officers,
employees or other officers thereof responsible for the
offense shall be charged and penalized for the crime,
precisely because of the nature of the crime and the
penalty therefor. A corporation cannot be arrested and
imprisoned; hence, cannot be penalized for a crime
punishable by imprisonment.[49] However, a
corporation may be charged and prosecuted for a
crime if the imposable penalty is fine. Even if the
statute prescribes both fine and imprisonment as
penalty, a corporation may be prosecuted and, if
found guilty, may be fined.[50]
 A crime is the doing of that which the penal act.[53] Moreover, all parties active in promoting a
code forbids to be done, or omitting to do what it crime, whether agents or not, are
commands. A necessary part of the definition of every principals.[54] Whether such officers or employees are
crime is the designation of the author of the crime benefited by their delictual acts is not a touchstone of
upon whom the penalty is to be inflicted. When a their criminal liability. Benefit is not an operative
criminal statute designates an act of a corporation or fact.
a crime and prescribes punishment therefor, it creates
In this case, petitioner signed the trust
a criminal offense which, otherwise, would not exist
receipts in question. He cannot, thus, hide behind the
and such can be
cloak of the separate corporate personality of
committed only by the corporation. But when a penal
PBMI. In the words of Chief Justice Earl Warren, a
statute does not
corporate officer cannot protect himself behind a
expressly apply to corporations, it does not create an
corporation where he is the actual, present and
offense for which a corporation may be punished. On
efficient actor.[55]
the other hand, if the State, by statute, defines a crime
that may be committed by a corporation but prescribes
IN LIGHT OF ALL THE
the penalty therefor to be suffered by the officers,
FOREGOING, the petition is DENIED for lack of
directors, or employees of such corporation or other
merit. Costs against the petitioner.
persons responsible for the offense, only such
individuals will suffer such penalty.[51] Corporate SO ORDERED.

officers or employees, through whose act, default or

omission the corporation commits a crime, are
themselves individually guilty of the crime.[52]

The principle applies whether or not the

crime requires the consciousness of wrongdoing. It
applies to those corporate agents who themselves
commit the crime and to those, who, by virtue of their
managerial positions or other similar relation to the
corporation, could be deemed responsible for its
commission, if by virtue of their relationship to the
corporation, they had the power to prevent the
 Republic of the Philippines an exclusive right to exhibit
SUPREME COURT some Viva films. Sometime in
Manila December 1991, in
accordance with paragraph
FIRST DIVISION 2.4 [sic] of said agreement
stating that —.
1.4 ABS-CBN shall have the
right of first refusal to the next
G.R. No. 128690 January 21, twenty-four (24) Viva films for
1999
TV telecast under such terms
as may be agreed upon by
ABS-CBN BROADCASTING the parties hereto, provided,
CORPORATION, petitioner, however, that such right shall
vs. be exercised by ABS-CBN
HONORABLE COURT OF APPEALS, from the actual offer in
REPUBLIC BROADCASTING CORP, VIVA writing.
PRODUCTION, INC., and VICENTE DEL
ROSARIO, respondents.
Viva, through defendant Del
Rosario, offered ABS-CBN,
through its vice-president
Charo Santos-Concio, a list of
DAVIDE, JR., CJ.: three(3) film packages (36
title) from which ABS-CBN
may exercise its right of first
In this petition for review on certiorari, petitioner refusal under the afore-said
ABS-CBN Broadcasting Corp. (hereafter ABS-
agreement (Exhs. "1" par, 2,
CBN) seeks to reverse and set aside the "2," "2-A'' and "2-B"-Viva).
decision 1 of 31 October 1996 and the
ABS-CBN, however through
resolution 2 of 10 March 1997 of the Court of Mrs. Concio, "can tick off only
Appeals in CA-G.R. CV No. 44125. The former
ten (10) titles" (from the list)
affirmed with modification the decision 3 of 28 "we can purchase" (Exh. "3" -
April 1993 of the Regional Trial Court (RTC) of
Viva) and therefore did not
Quezon City, Branch 80, in Civil Case No. Q- accept said list (TSN, June 8,
92-12309. The latter denied the motion to 1992, pp. 9-10). The titles
reconsider the decision of 31 October 1996. ticked off by Mrs. Concio are
not the subject of the case at
The antecedents, as found by the RTC and bar except the film ''Maging
adopted by the Court of Appeals, are as follows: Sino Ka Man."
In 1990, ABS-CBN and Viva For further enlightenment, this
executed a Film Exhibition rejection letter dated January
Agreement (Exh. "A") 06, 1992 (Exh "3" - Viva) is
whereby Viva gave ABS-CBN hereby quoted:
6 January 1992
Dear Vic,
This is not a very formal
business letter I am writing to
you as I would like to express
my difficulty in recommending
the purchase of the three film
packages you are offering
ABS-CBN.
From among the three
packages I can only tick off
10 titles we can purchase.
Please see attached. I hope
you will understand my
position. Most of the action
pictures in the list do not have
big action stars in the cast.
They are not for primetime. In
line with this I wish to mention
that I have not scheduled for
telecast several action
pictures in out very first
contract because of the
cheap production value of
these movies as well as the
lack of big action stars. As a
film producer, I am sure you
understand what I am trying
to say as Viva produces only
big action pictures.
In fact, I would like to request
two (2) additional runs for
these movies as I can only
schedule them in our non-
primetime slots. We have to
cover the amount that was
paid for these movies
because as you very well
know that non-primetime
advertising rates are very low.
These are the unaired titles in
the first contract.
1. Kontra Persa [sic].
2. Raider Platoon.
3. Underground guerillas
4. Tiger Command
5. Boy de Sabog
6. Lady Commando
7. Batang Matadero
8. Rebelyon
I hope you will consider this
request of mine.
The other dramatic films have
been offered to us before and
have been rejected because
of the ruling of MTRCB to
have them aired at 9:00 p.m.
due to their very adult
themes.
As for the 10 titles I have
choosen [sic] from the 3
packages please consider
including all the other Viva
movies produced last year. I
have quite an attractive offer
to make.
Thanking you and with my
warmest regards.
On February 27, 1992,
defendant Del Rosario
approached ABS-CBN's Ms.
Concio, with a list consisting
of 52 original movie titles (i.e.
not yet aired on television)
including the 14 titles subject
of the present case, as well
as 104 re-runs (previously
aired on television) from
which ABS-CBN may choose
another 52 titles, as a total of
156 titles, proposing to sell to
ABS-CBN airing rights over
this package of 52 originals
and 52 re-runs for
P60,000,000.00 of which (
P30,000,000.00 will be in S
cash and P30,000,000.00 i
worth of television spots (Exh. g
"4" to "4-C" Viva; "9" -Viva). n
e
On April 2, 1992, defendant d
Del Rosario and ABS-CBN )
general manager, Eugenio
Lopez III, met at the Tamarind C
Grill Restaurant in Quezon h
City to discuss the package a
proposal of Viva. What r
transpired in that lunch o
meeting is the subject of S
conflicting versions. Mr. a
Lopez testified that he and n
Mr. Del Rosario allegedly t
agreed that ABS-CRN was o
granted exclusive film rights s
to fourteen (14) films for a -
total consideration of P36 C
million; that he allegedly put o
this agreement as to the price n
and number of films in a c
"napkin'' and signed it and i
gave it to Mr. Del Rosario o
(Exh. D; TSN, pp. 24-26, 77-
78, June 8, 1992). On the
other hand, Del Rosario
denied having made any
agreement with Lopez
regarding the 14 Viva films;
denied the existence of a
napkin in which Lopez wrote
something; and insisted that
what he and Lopez discussed
at the lunch meeting was
Viva's film package offer of
104 films (52 originals and 52
re-runs) for a total price of
P60 million. Mr. Lopez
promising [sic]to make a
counter proposal which came
in the form of a proposal
contract Annex "C" of the
complaint (Exh. "1"·- Viva;
Exh. "C" - ABS-CBN).
On April 06, 1992, Del
Rosario and Mr. Graciano
Gozon of RBS Senior vice-
president for Finance
discussed the terms and
conditions of Viva's offer to
sell the 104 films, after the
rejection of the same package
by ABS-CBN.
On April 07, 1992, defendant
Del Rosario received through
his secretary, a handwritten
note from Ms. Concio, (Exh.
"5" - Viva), which reads:
"Here's the draft of the
contract. I hope you find
everything in order," to which
was attached a draft
exhibition agreement (Exh.
"C''- ABS-CBN; Exh. "9" -
Viva, p. 3) a counter-proposal
covering 53 films, 52 of which
came from the list sent by
defendant Del Rosario and
one film was added by Ms.
Concio, for a consideration of
P35 million. Exhibit "C"
provides that ABS-CBN is
granted films right to 53 films
and contains a right of first
refusal to "1992 Viva Films."
The said counter proposal
was however rejected by
Viva's Board of Directors [in
the] evening of the same day,
April 7, 1992, as Viva would
not sell anything less than the
package of 104 films for P60
million pesos (Exh. "9" -
Viva), and such rejection was
relayed to Ms. Concio.
On April 29, 1992, after the
rejection of ABS-CBN and
following several negotiations
and meetings defendant Del
Rosario and Viva's President
Teresita Cruz, in
consideration of P60 million,
signed a letter of agreement
dated April 24, 1992. granting
RBS the exclusive right to air
104 Viva-produced and/or
acquired films (Exh. "7-A" -
RBS; Exh. "4" - RBS)
including the fourteen (14)
films subject of the present
case. 4
On 27 May 1992, ABS-CBN filed before the
RTC a complaint for specific performance with a
prayer for a writ of preliminary injunction and/or
temporary restraining order against private
respondents Republic Broadcasting
Corporation 5 (hereafter RBS ), Viva Production
(hereafter VIVA), and Vicente Del Rosario. The
complaint was docketed as Civil Case No. Q-
92-12309.
On 27 May 1992, RTC issued a temporary
restraining order 6 enjoining private respondents
from proceeding with the airing, broadcasting,
and televising of the fourteen VIVA films subject
of the controversy, starting with the film Maging
Sino Ka Man, which was scheduled to be
shown on private respondents RBS' channel 7
at seven o'clock in the evening of said date.
On 17 June 1992, after appropriate
proceedings, the RTC issued an
order 7 directing the issuance of a writ of
preliminary injunction upon ABS-CBN's posting
of P35 million bond. ABS-CBN moved for the
reduction of the bond, 8 while private
respondents moved for reconsideration of the
order and offered to put up a counterbound. 9
In the meantime, private respondents filed
separate answers with counterclaim. 10 RBS
also set up a cross-claim against VIVA..
On 3 August 1992, the RTC issued an
order 11 dissolving the writ of preliminary
injunction upon the posting by RBS of a P30
million counterbond to answer for whatever
damages ABS-CBN might suffer by virtue of
such dissolution. However, it reduced
petitioner's injunction bond to P15 million as a
condition precedent for the reinstatement of the
writ of preliminary injunction should private
respondents be unable to post a counterbond.
At the pre-trial 12 on 6 August 1992, the parties,
upon suggestion of the court, agreed to explore
the possibility of an amicable settlement. In the
meantime, RBS prayed for and was granted
reasonable time within which to put up a P30
million counterbond in the event that no
settlement would be reached.
As the parties failed to enter into an amicable
settlement RBS posted on 1 October 1992 a
counterbond, which the RTC approved in its
Order of 15 October 1992.13
On 19 October 1992, ABS-CBN filed a motion
for reconsideration 14 of the 3 August and 15
October 1992 Orders, which RBS opposed. 15
On 29 October 1992, the RTC conducted a pre-
trial. 16
Pending resolution of its motion for to pay B
reconsideration, ABS-CBN filed with the Court defendant S
of Appeals a petition17challenging the RTC's RBS the t
Orders of 3 August and 15 October 1992 and following: o
praying for the issuance of a writ of preliminary t
injunction to enjoin the RTC from enforcing said a h
orders. The case was docketed as CA-G.R. SP ) e
No. 29300. P s
1 u
On 3 November 1992, the Court of Appeals 0 r
issued a temporary restraining order18 to enjoin 7 e
the airing, broadcasting, and televising of any or , t
all of the films involved in the controversy. 7 y
2 w
7 h
On 18 December 1992, the Court of Appeals i
promulgated a decision 19 dismissing the .
0 c
petition in CA -G.R. No. 29300 for being h
premature. ABS-CBN challenged the dismissal 0
, i
in a petition for review filed with this Court on 19 s
January 1993, which was docketed as G.R. No. t
h s
108363. u
e
a e
In the meantime the RTC received the evidence m d
for the parties in Civil Case No. Q-192-1209. o d
Thereafter, on 28 April 1993, it rendered a u e
decision 20 in favor of RBS and VIVA and n f
against ABS-CBN disposing as follows: t e
o n
WHEREFORE, under cool f d
reflection and prescinding p a
from the foregoing, judgments r n
is rendered in favor of e t
defendants and against the m R
plaintiff. i B
u S
m '
(1) The s
complaint is p
a b
hereby o
dismissed; i
d n
b d
(2) Plaintiff y t
ABS-CBN R o
is ordered l
i f o
f p u
t r s
t i n
h n e
e t w
i a s
n d p
j v a
u e p
n r e
c t r
t i s
i s ;
o e
n m c
; e )
n A
b t t
) f t
P o o
1 r r
9 " n
1 M e
, a y
8 g '
4 i s
3 n f
. g e
0 S e
0 i s
f n i
o o n
r K t
t a h
h M e
e a a
a n m
m " o
o i u
u n n
n v t
t a o
o r f
i
P e (3) For
1 s defendant
m ; VIVA,
i plaintiff
l e ABS-CBN
l ) is ordered
i P to pay
o 5 P212,000.0
n m 0 by way of
; i reasonable
l attorney's
d l fees.
) i
P o (4) The
5 n cross-claim
m a of
i s defendant
l a RBS
l n against
i d defendant
o b VIVA is
n y dismissed.
a w
s a (5) Plaintiff
a y to pay the
n o costs.
d f
b e
y x According to the RTC, there was no meeting of
w e minds on the price and terms of the offer. The
a m alleged agreement between Lopez III and Del
y p Rosario was subject to the approval of the VIVA
o l Board of Directors, and said agreement was
f a disapproved during the meeting of the Board on
m r 7 April 1992. Hence, there was no basis for
o y ABS-CBN's demand that VIVA signed the 1992
r d Film Exhibition Agreement. Furthermore, the
a a right of first refusal under the 1990 Film
l m Exhibition Agreement had previously been
d a exercised per Ms. Concio's letter to Del Rosario
a g ticking off ten titles acceptable to them, which
m e would have made the 1992 agreement an
a s entirely new contract.
g ;
On 21 June 1993, this Court denied21 ABS- refusal to
CBN's petition for review in G.R. No. 108363, as the next
no reversible error was committed by the Court twenty-four
of Appeals in its challenged decision and the (24) VIVA
case had "become moot and academic in view films for TV
of the dismissal of the main action by the telecast
court a quo in its decision" of 28 April 1993. under such
terms as
Aggrieved by the RTC's decision, ABS-CBN may be
appealed to the Court of Appeals claiming that agreed
there was a perfected contract between ABS- upon by the
CBN and VIVA granting ABS-CBN the exclusive parties
right to exhibit the subject films. Private hereto,
respondents VIVA and Del Rosario also provided,
appealed seeking moral and exemplary however,
damages and additional attorney's fees. that such
right shall
be
In its decision of 31 October 1996, the Court of exercised
Appeals agreed with the RTC that the contract by ABS-
between ABS-CBN and VIVA had not been CBN within
perfected, absent the approval by the VIVA a period of
Board of Directors of whatever Del Rosario, it's fifteen (15)
agent, might have agreed with Lopez III. The days from
appellate court did not even believe ABS-CBN's the actual
evidence that Lopez III actually wrote down offer in
such an agreement on a "napkin," as the same writing
was never produced in court. It likewise rejected (Records,
ABS-CBN's insistence on its right of first refusal p. 14).
and ratiocinated as follows:
[H]owever, it is very clear that
As regards the matter of right said right of first refusal in
of first refusal, it may be true
favor of ABS-CBN shall still
that a Film Exhibition be subject to such terms as
Agreement was entered into
may be agreed upon by the
between Appellant ABS-CBN parties thereto, and that the
and appellant VIVA under
said right shall be exercised
Exhibit "A" in 1990, and that by ABS-CBN within fifteen
parag. 1.4 thereof provides:
(15) days from the actual offer
in writing.
1.4 ABS-
CBN shall Said parag. 1.4 of the
have the agreement Exhibit "A" on the
right of first right of first refusal did not fix
the price of the film right to
the twenty-four (24) films, nor
did it specify the terms
thereof. The same are still left
to be agreed upon by the
parties.
In the instant case, ABS-
CBN's letter of rejection
Exhibit 3 (Records, p. 89)
stated that it can only tick off
ten (10) films, and the draft
contract Exhibit "C" accepted
only fourteen (14) films, while
parag. 1.4 of Exhibit "A''
speaks of the next twenty-four
(24) films.
The offer of V1VA was
sometime in December 1991
(Exhibits 2, 2-A. 2-B;
Records, pp. 86-88; Decision,
p. 11, Records, p. 1150),
when the first list of VIVA
films was sent by Mr. Del
Rosario to ABS-CBN. The
Vice President of ABS-CBN,
Ms. Charo Santos-Concio,
sent a letter dated January 6,
1992 (Exhibit 3, Records, p.
89) where ABS-CBN
exercised its right of refusal
by rejecting the offer of VIVA..
As aptly observed by the trial
court, with the said letter of
Mrs. Concio of January 6,
1992, ABS-CBN had lost its
right of first refusal. And even
if We reckon the fifteen (15)
day period from February 27,
1992 (Exhibit 4 to 4-C) when
another list was sent to ABS-
CBN after the letter of Mrs.
Concio, still the fifteen (15)
 day period within which ABS-
CBN shall exercise its right of
first refusal has already
expired.22
Accordingly, respondent court sustained the
award of actual damages consisting in the cost
of print advertisements and the premium
payments for the counterbond, there being
adequate proof of the pecuniary loss which RBS
had suffered as a result of the filing of the
complaint by ABS-CBN. As to the award of
moral damages, the Court of Appeals found
reasonable basis therefor, holding that RBS's
reputation was debased by the filing of the
complaint in Civil Case No. Q-92-12309 and by
the non-showing of the film "Maging Sino Ka
Man." Respondent court also held that
exemplary damages were correctly imposed by
way of example or correction for the public good
in view of the filing of the complaint despite
petitioner's knowledge that the contract with
VIVA had not been perfected, It also upheld the
award of attorney's fees, reasoning that with
ABS-CBN's act of instituting Civil Case No, Q-
92-1209, RBS was "unnecessarily forced to
litigate." The appellate court, however, reduced
the awards of moral damages to P2 million,
exemplary damages to P2 million, and
attorney's fees to P500, 000.00.
On the other hand, respondent Court of Appeals
denied VIVA and Del Rosario's appeal because
it was "RBS and not VIVA which was actually
prejudiced when the complaint was filed by
ABS-CBN."
Its motion for reconsideration having been
denied, ABS-CBN filed the petition in this case,
contending that the Court of Appeals gravely
erred in
I Exhibition Agreement) and upon agreement
. . . RULING THAT THERE
WAS NO PERFECTED
CONTRACT BETWEEN
PETITIONER AND PRIVATE
RESPONDENT VIVA
NOTWITHSTANDING
PREPONDERANCE OF
EVIDENCE ADDUCED BY
PETITIONER TO THE
CONTRARY.
II
. . . IN AWARDING ACTUAL
AND COMPENSATORY
DAMAGES IN FAVOR OF
PRIVATE RESPONDENT
RBS.
III
. . . IN AWARDING MORAL
AND EXEMPLARY
DAMAGES IN FAVOR OF
PRIVATE RESPONDENT
RBS.
IV
. . . IN AWARDING
ATTORNEY'S FEES IN
FAVOR OF RBS.
ABS-CBN claims that it had yet to fully exercise
its right of first refusal over twenty-four titles
under the 1990 Film Exhibition Agreement, as it
had chosen only ten titles from the first list. It
insists that we give credence to Lopez's
testimony that he and Del Rosario met at the
Tamarind Grill Restaurant, discussed the terms
and conditions of the second list (the 1992 Film
thereon, wrote the same on a paper napkin. It
also asserts that the contract has already been
effective, as the elements thereof, namely,
consent, object, and consideration were
established. It then concludes that the Court of
Appeals' pronouncements were not supported
by law and jurisprudence, as per our decision of
1 December 1995 in Limketkai Sons Milling, Inc.
v. Court of Appeals, 23 which cited Toyota
Shaw, Inc. v. Court of Appeals, 24 Ang Yu
Asuncion v. Court of Appeals, 25 and Villonco
Realty Company v. Bormaheco. Inc.26
Anent the actual damages awarded to RBS,
ABS-CBN disavows liability therefor. RBS spent
for the premium on the counterbond of its own
volition in order to negate the injunction issued
by the trial court after the parties had ventilated
their respective positions during the hearings for
the purpose. The filing of the counterbond was
an option available to RBS, but it can hardly be
argued that ABS-CBN compelled RBS to incur
such expense. Besides, RBS had another
available option, i.e., move for the dissolution or
the injunction; or if it was determined to put up a
counterbond, it could have presented a cash
bond. Furthermore under Article 2203 of the
Civil Code, the party suffering loss or injury is
also required to exercise the diligence of a good
father of a family to minimize the damages
resulting from the act or omission. As regards
the cost of print advertisements, RBS had not
convincingly established that this was a loss
attributable to the non showing "Maging Sino Ka
Man"; on the contrary, it was brought out during
trial that with or without the case or the
injunction, RBS would have spent such an
amount to generate interest in the film.
ABS-CBN further contends that there was no
clear basis for the awards of moral and
exemplary damages. The controversy involving
ABS-CBN and RBS did not in any way originate
from business transaction between them. The
claims for such damages did not arise from any
contractual dealings or from specific acts
committed by ABS-CBN against RBS that may
be characterized as wanton, fraudulent, or
reckless; they arose by virtue only of the filing of
the complaint, An award of moral and
exemplary damages is not warranted where the
record is bereft of any proof that a party acted
maliciously or in bad faith in filing an action. 27 In
any case, free resort to courts for redress of
wrongs is a matter of public policy. The law
recognizes the right of every one to sue for that
which he honestly believes to be his right
without fear of standing trial for damages where
by lack of sufficient evidence, legal
technicalities, or a different interpretation of the
laws on the matter, the case would lose
ground. 28 One who makes use of his own legal
right does no injury. 29 If damage results front
the filing of the complaint, it is damnum absque
injuria. 30 Besides, moral damages are generally
not awarded in favor of a juridical person,
unless it enjoys a good reputation that was
debased by the offending party resulting in
social humiliation.31
As regards the award of attorney's fees, ABS-
CBN maintains that the same had no factual,
legal, or equitable justification. In sustaining the
trial court's award, the Court of Appeals acted in
clear disregard of the doctrines laid down
in Buan v. Camaganacan 32 that the text of the
decision should state the reason why attorney's
fees are being awarded; otherwise, the award
should be disallowed. Besides, no bad faith has
been imputed on, much less proved as having
been committed by, ABS-CBN. It has been held
that "where no sufficient showing of bad faith
would be reflected in a party' s persistence in a
case other than an erroneous conviction of the
righteousness of his cause, attorney's fees shall
not be recovered as cost." 33
On the other hand, RBS asserts that there was
no perfected contract between ABS-CBN and
VIVA absent any meeting of minds between
them regarding the object and consideration of
the alleged contract. It affirms that the ABS-
CBN's claim of a right of first refusal was
correctly rejected by the trial court. RBS insist
the premium it had paid for the counterbond
constituted a pecuniary loss upon which it may
recover. It was obliged to put up the
counterbound due to the injunction procured by
ABS-CBN. Since the trial court found that ABS-
CBN had no cause of action or valid claim
against RBS and, therefore not entitled to the
writ of injunction, RBS could recover from ABS-
CBN the premium paid on the counterbond.
Contrary to the claim of ABS-CBN, the cash
bond would prove to be more expensive, as the
loss would be equivalent to the cost of money
RBS would forego in case the P30 million came
from its funds or was borrowed from banks.
RBS likewise asserts that it was entitled to the
cost of advertisements for the cancelled
showing of the film "Maging Sino Ka Man"
because the print advertisements were put out
to announce the showing on a particular day
and hour on Channel 7, i.e., in its entirety at one
time, not a series to be shown on a periodic
basis. Hence, the print advertisement were
good and relevant for the particular date
showing, and since the film could not be shown
on that particular date and hour because of the
injunction, the expenses for the advertisements
had gone to waste.
As regards moral and exemplary damages,
RBS asserts that ABS-CBN filed the case and
secured injunctions purely for the purpose of
harassing and prejudicing RBS. Pursuant then
to Article 19 and 21 of the Civil Code, ABS-CBN
must be held liable for such
damages. Citing Tolentino,34 damages may be
awarded in cases of abuse of rights even if the
act done is not illicit and there is abuse of rights
were plaintiff institutes and action purely for the
purpose of harassing or prejudicing the
defendant.
In support of its stand that a juridical entity can
recover moral and exemplary damages, private
respondents RBS cited People
v. Manero,35 where it was stated that such entity
may recover moral and exemplary damages if it
has a good reputation that is debased resulting
in social humiliation. it then ratiocinates; thus:
There can be no doubt that
RBS' reputation has been
debased by ABS-CBN's acts
in this case. When RBS was
not able to fulfill its
commitment to the viewing
public to show the film
"Maging Sino Ka Man" on the
scheduled dates and times
(and on two occasions that
RBS advertised), it suffered
serious embarrassment and
social humiliation. When the
showing was canceled, late
viewers called up RBS' offices
and subjected RBS to verbal
abuse ("Announce kayo nang
announce, hindi ninyo naman
ilalabas," "nanloloko yata
kayo") (Exh. 3-RBS, par. 3).
This alone was not something
RBS brought upon itself. it
was exactly what ABS-CBN
had planned to happen.
The amount of moral and
exemplary damages cannot
be said to be excessive. Two
reasons justify the amount of
the award.
 The first is that the humiliation
suffered by RBS is national
extent. RBS operations as a
broadcasting company is [sic]
nationwide. Its clientele, like
that of ABS-CBN, consists of
those who own and watch
television. It is not an
exaggeration to state, and it is
a matter of judicial notice that
almost every other person in
the country watches
television. The humiliation
suffered by RBS is multiplied
by the number of televiewers
who had anticipated the
showing of the film "Maging
Sino Ka Man" on May 28 and
November 3, 1992 but did not
see it owing to the
cancellation. Added to this
are the advertisers who had
placed commercial spots for
the telecast and to whom
RBS had a commitment in
consideration of the
placement to show the film in
the dates and times specified.
The second is that it is a
competitor that caused RBS
to suffer the humiliation. The
humiliation and injury are far
greater in degree when
caused by an entity whose
ultimate business objective is
to lure customers (viewers in
this case) away from the
competition. 36
For their part, VIVA and Vicente del Rosario
contend that the findings of fact of the trial court
and the Court of Appeals do not support ABS-
CBN's claim that there was a perfected contract.
Such factual findings can no longer be disturbed
in this petition for review under Rule 45, as only
questions of law can be raised, not questions of
fact. On the issue of damages and attorneys
fees, they adopted the arguments of RBS.
The key issues for our consideration are (1)
whether there was a perfected contract between
VIVA and ABS-CBN, and (2) whether RBS is
entitled to damages and attorney's fees. It may
be noted that the award of attorney's fees of
P212,000 in favor of VIVA is not assigned as
another error.
I.
The first issue should be resolved against ABS-
CBN. A contract is a meeting of minds between
two persons whereby one binds himself to give
something or to render some service to
another 37 for a consideration. there is no
contract unless the following requisites concur:
(1) consent of the contracting parties; (2) object
certain which is the subject of the contract; and
(3) cause of the obligation, which is
established.38 A contract undergoes three
stages:
(a) preparation, conception,
or generation, which is the
period of negotiation and
bargaining, ending at the
moment of agreement of the
parties;
(b) perfection or birth of the
contract, which is the moment
when the parties come to
agree on the terms of the
contract; and
(c) consummation or death,
which is the fulfillment or
performance of the terms
agreed upon in the
contract. 39
Contracts that are consensual in nature are
perfected upon mere meeting of the minds,
Once there is concurrence between the offer
and the acceptance upon the subject matter,
consideration, and terms of payment a contract
is produced. The offer must be certain. To
convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms
of the offer; it must be plain, unequivocal,
unconditional, and without variance of any sort
from the proposal. A qualified acceptance, or
one that involves a new proposal, constitutes a
counter-offer and is a rejection of the original
offer. Consequently, when something is desired
which is not exactly what is proposed in the
offer, such acceptance is not sufficient to
generate consent because any modification or
variation from the terms of the offer annuls the
offer.40
When Mr. Del Rosario of VIVA met with Mr.
Lopez of ABS-CBN at the Tamarind Grill on 2
April 1992 to discuss the package of films, said
package of 104 VIVA films was VIVA's offer to
ABS-CBN to enter into a new Film Exhibition
Agreement. But ABS-CBN, sent, through Ms.
Concio, a counter-proposal in the form of a draft
contract proposing exhibition of 53 films for a
consideration of P35 million. This counter-
proposal could be nothing less than the counter-
offer of Mr. Lopez during his conference with
Del Rosario at Tamarind Grill Restaurant.
Clearly, there was no acceptance of VIVA's
offer, for it was met by a counter-offer which
substantially varied the terms of the offer.
ABS-CBN's reliance in Limketkai Sons Milling,
Inc. v. Court of
Appeals 41 and Villonco Realty Company
v. Bormaheco, Inc., 42 is misplaced. In these
cases, it was held that an acceptance may
contain a request for certain changes in the
terms of the offer and yet be a binding
acceptance as long as "it is clear that the
meaning of the acceptance is positively and
unequivocally to accept the offer, whether such
request is granted or not." This ruling was,
however, reversed in the resolution of 29 March
1996, 43 which ruled that the acceptance of all
offer must be unqualified and absolute, i.e., it
"must be identical in all respects with that of the
offer so as to produce consent or meeting of the
minds."
On the other hand, in Villonco, cited in
Limketkai, the alleged changes in the revised
counter-offer were not material but merely
clarificatory of what had previously been agreed
upon. It cited the statement in Stuart v. Franklin
Life Insurance Co.44 that "a vendor's change in
a phrase of the offer to purchase, which change
does not essentially change the terms of the
offer, does not amount to a rejection of the offer
and the tender of a counter-offer." 45However,
when any of the elements of the contract is
modified upon acceptance, such alteration
amounts to a counter-offer.
In the case at bar, ABS-CBN made no
unqualified acceptance of VIVA's offer. Hence,
they underwent a period of bargaining. ABS-
CBN then formalized its counter-proposals or
counter-offer in a draft contract, VIVA through
its Board of Directors, rejected such counter-
offer, Even if it be conceded arguendo that Del
Rosario had accepted the counter-offer, the
acceptance did not bind VIVA, as there was no
proof whatsoever that Del Rosario had the
specific authority to do so.
Under Corporation Code,46 unless otherwise
provided by said Code, corporate powers, such
as the power; to enter into contracts; are
exercised by the Board of Directors. However,
the Board may delegate such powers to either
an executive committee or officials or
contracted managers. The delegation, except
for the executive committee, must be for
specific purposes, 47 Delegation to officers
makes the latter agents of the corporation;
accordingly, the general rules of agency as to
the bindings effects of their acts would
apply. 48 For such officers to be deemed fully
clothed by the corporation to exercise a power
of the Board, the latter must specially authorize
them to do so. That Del Rosario did not have
the authority to accept ABS-CBN's counter-offer
was best evidenced by his submission of the
draft contract to VIVA's Board of Directors for
the latter's approval. In any event, there was
between Del Rosario and Lopez III no meeting
of minds. The following findings of the trial court
are instructive:
A number of considerations
militate against ABS-CBN's
claim that a contract was
perfected at that lunch
meeting on April 02, 1992 at
the Tamarind Grill.
FIRST, Mr. Lopez claimed
that what was agreed upon at
the Tamarind Grill referred to
the price and the number of
films, which he wrote on a
napkin. However, Exhibit "C"
contains numerous provisions
which, were not discussed at
the Tamarind Grill, if Lopez
testimony was to be believed
nor could they have been
physically written on a napkin.
There was even doubt as to
whether it was a paper napkin
or a cloth napkin. In short
what were written in Exhibit
"C'' were not discussed, and
therefore could not have been
agreed upon, by the parties.
How then could this court
compel the parties to sign
Exhibit "C" when the
provisions thereof were not
previously agreed upon?
SECOND, Mr. Lopez claimed
that what was agreed upon as
the subject matter of the
contract was 14 films. The
complaint in fact prays for
delivery of 14 films. But
Exhibit "C" mentions 53 films
as its subject matter. Which is
which If Exhibits "C" reflected
the true intent of the parties,
then ABS-CBN's claim for 14
films in its complaint is false
or if what it alleged in the
complaint is true, then Exhibit
"C" did not reflect what was
agreed upon by the parties.
This underscores the fact that
there was no meeting of the
minds as to the subject matter
of the contracts, so as to
preclude perfection thereof.
For settled is the rule that
there can be no contract
where there is no object
which is its subject matter
(Art. 1318, NCC).
THIRD, Mr. Lopez [sic]
answer to question 29 of his
affidavit testimony (Exh. "D")
states:
We were
able to
reach an
agreement.
 VIVA gave Viva Since Exhibit "C" is only a
us the movies, the draft, or a tentative,
exclusive 7 provisional or preparatory
license to blockbuster writing prepared for
show these movies and discussion, the terms and
fourteen the other 7 conditions thereof could not
(14) films, Viva have been previously agreed
and we movies upon by ABS-CBN and Viva
agreed to because Exhibit "C'' could not therefore
pay Viva the price legally bind Viva, not having
the amount was broken agreed thereto. In fact, Ms.
of down Concio admitted that the
P16,050,00 accordingly. terms and conditions
0.00 as well The none embodied in Exhibit "C" were
as grant [sic] Viva prepared by ABS-CBN's
Viva and the lawyers and there was no
commercial seven other discussion on said terms and
slots worth Viva conditions. . . .
P19,950,00 movies and
0.00. We the sharing As the parties had not yet
had already between discussed the proposed terms
earmarked the cash and conditions in Exhibit "C,"
this P16, portion and and there was no evidence
050,000.00. the whatsoever that Viva agreed
concerned to the terms and conditions
which gives a total spot portion thereof, said document
consideration of P36 million in the total cannot be a binding contract.
(P19,950,000.00 plus amount of The fact that Viva refused to
P16,050,000.00. equals P35 million sign Exhibit "C" reveals only
P36,000,000.00). pesos. two [sic] well that it did not
agree on its terms and
On cross-examination Mr. Now, which is which? P36 conditions, and this court has
Lopez testified: million or P35 million? This no authority to compel Viva to
weakens ABS-CBN's claim. agree thereto.
Q. What
was written FOURTH. Mrs. Concio, FIFTH. Mr. Lopez understand
in this testifying for ABS-CBN stated [sic] that what he and Mr. Del
napkin? that she transmitted Exhibit Rosario agreed upon at the
"C" to Mr. Del Rosario with a Tamarind Grill was only
handwritten note, describing provisional, in the sense that
A. The total said Exhibit "C" as a "draft." it was subject to approval by
price, the (Exh. "5" - Viva; tsn pp. 23-24 the Board of Directors of Viva.
breakdown June 08, 1992). The said draft He testified:
the known has a well defined meaning.
Q. Now, Mr. [sic] a piece defendant Viva" which "is a
Witness, of paper? corporation." (par. 2,
and after complaint). As a mere agent
that A. Yes, sir. of Viva, Del Rosario could not
Tamarind bind Viva unless what he did
meeting ... is ratified by its Board of
the second Q. So, he Directors. (Vicente
meeting was going vs. Geraldez, 52 SCRA
wherein to forward 210; Arnold vs. Willetsand
you claimed that to the Paterson, 44 Phil. 634). As a
that you board of mere agent, recognized as
have the Directors such by plaintiff, Del Rosario
meeting of for could not be held liable jointly
the minds approval? and severally with Viva and
between his inclusion as party
you and Mr. A. Yes, sir. defendant has no legal basis.
Vic del (Tsn, pp. (Salonga vs. Warner
Rosario, 42-43, June Barner [sic] , COLTA , 88
what 8, 1992) Phil. 125; Salmon vs. Tan, 36
happened? Phil. 556).
Q. Did Mr.
A. Vic Del Del Rosario The testimony of Mr. Lopez
Rosario tell you that and the allegations in the
was he will complaint are clear
supposed submit it to admissions that what was
to call us up his Board supposed to have been
and tell us for agreed upon at the Tamarind
specifically approval? Grill between Mr. Lopez and
the result of Del Rosario was not a binding
the A. Yes, sir. agreement. It is as it should
discussion (Tsn, p. 69, be because corporate power
with the June 8, to enter into a contract is
Board of 1992). lodged in the Board of
Directors. Directors. (Sec. 23,
Corporation Code). Without
The above testimony of Mr. such board approval by the
Q. And you Lopez shows beyond doubt
are Viva board, whatever
that he knew Mr. Del Rosario agreement Lopez and Del
referring to had no authority to bind Viva
the so- Rosario arrived at could not
to a contract with ABS-CBN ripen into a valid contract
called until and unless its Board of
agreement binding upon Viva (Yao Ka
Directors approved it. The Sin Trading vs. Court of
which you complaint, in fact, alleges that
wrote in Appeals, 209 SCRA 763).
Mr. Del Rosario "is the The evidence adduced shows
Executive Producer of
 that the Board of Directors of
Viva rejected Exhibit "C" and
insisted that the film package
for 140 films be maintained
(Exh. "7-1" - Viva ). 49
The contention that ABS-CBN had yet to fully
exercise its right of first refusal over twenty-four
films under the 1990 Film Exhibition Agreement
and that the meeting between Lopez and Del
Rosario was a continuation of said previous
contract is untenable. As observed by the trial
court, ABS-CBN right of first refusal had already
been exercised when Ms. Concio wrote to VIVA
ticking off ten films, Thus:
[T]he subsequent negotiation
with ABS-CBN two (2)
months after this letter was
sent, was for an entirely
different package. Ms. Concio
herself admitted on cross-
examination to having used or
exercised the right of first
refusal. She stated that the
list was not acceptable and
was indeed not accepted by
ABS-CBN, (TSN, June 8,
1992, pp. 8-10). Even Mr.
Lopez himself admitted that
the right of the first refusal
may have been already
exercised by Ms. Concio (as
she had). (TSN, June 8,
1992, pp. 71-75). Del Rosario
himself knew and understand
[sic] that ABS-CBN has lost
its rights of the first refusal
when his list of 36 titles were
rejected (Tsn, June 9, 1992,
pp. 10-11) 50
II
However, we find for ABS-CBN on the issue of
damages. We shall first take up actual
damages. Chapter 2, Title XVIII, Book IV of the
Civil Code is the specific law on actual or
compensatory damages. Except as provided by
law or by stipulation, one is entitled to
compensation for actual damages only for such
pecuniary loss suffered by him as he has duly
proved. 51 The indemnification shall
comprehend not only the value of the loss
suffered, but also that of the profits that the
obligee failed to obtain. 52 In contracts and
quasi-contracts the damages which may be
awarded are dependent on whether the obligor
acted with good faith or otherwise, It case of
good faith, the damages recoverable are those
which are the natural and probable
consequences of the breach of the obligation
and which the parties have foreseen or could
have reasonably foreseen at the time of the
constitution of the obligation. If the obligor acted
with fraud, bad faith, malice, or wanton attitude,
he shall be responsible for all damages which
may be reasonably attributed to the non-
performance of the obligation. 53 In crimes and
quasi-delicts, the defendant shall be liable for all
damages which are the natural and probable
consequences of the act or omission
complained of, whether or not such damages
has been foreseen or could have reasonably
been foreseen by the defendant.54
Actual damages may likewise be recovered for
loss or impairment of earning capacity in cases
of temporary or permanent personal injury, or
for injury to the plaintiff's business standing or
commercial credit.55
The claim of RBS for actual damages did not
arise from contract, quasi-contract, delict, or
quasi-delict. It arose from the fact of filing of the
complaint despite ABS-CBN's alleged
knowledge of lack of cause of action. Thus
paragraph 12 of RBS's Answer with
Counterclaim and Cross-claim under the
heading COUNTERCLAIM specifically alleges:
12. ABS-CBN filed the
complaint knowing fully well
that it has no cause of action
RBS. As a result thereof, RBS
suffered actual damages in
the amount of
P6,621,195.32. 56
Needless to state the award of actual damages
cannot be comprehended under the above law
on actual damages. RBS could only probably
take refuge under Articles 19, 20, and 21 of the
Civil Code, which read as follows:
Art. 19. Every person must, in
the exercise of his rights and
in the performance of his
duties, act with justice, give
everyone his due, and
observe honesty and good
faith.
Art. 20. Every person who,
contrary to law, wilfully or
negligently causes damage to
another, shall indemnify the
latter for tile same.
Art. 21. Any person who
wilfully causes loss or injury
to another in a manner that is
contrary to morals, good
customs or public policy shall
compensate the latter for the
damage.
It may further be observed that in cases where
a writ of preliminary injunction is issued, the
damages which the defendant may suffer by
reason of the writ are recoverable from the
injunctive bond. 57 In this case, ABS-CBN had
not yet filed the required bond; as a matter of
fact, it asked for reduction of the bond and even
went to the Court of Appeals to challenge the
order on the matter, Clearly then, it was not
necessary for RBS to file a counterbond.
Hence, ABS-CBN cannot be held responsible
for the premium RBS paid for the counterbond.
Neither could ABS-CBN be liable for the print
advertisements for "Maging Sino Ka Man" for
lack of sufficient legal basis. The RTC issued a
temporary restraining order and later, a writ of
preliminary injunction on the basis of its
determination that there existed sufficient
ground for the issuance thereof. Notably, the
RTC did not dissolve the injunction on the
ground of lack of legal and factual basis, but
because of the plea of RBS that it be allowed to
put up a counterbond.
As regards attorney's fees, the law is clear that
in the absence of stipulation, attorney's fees
may be recovered as actual or compensatory
damages under any of the circumstances
provided for in Article 2208 of the Civil Code. 58
The general rule is that attorney's fees cannot
be recovered as part of damages because of
the policy that no premium should be placed on
the right to litigate.59 They are not to be
awarded every time a party wins a suit. The
power of the court to award attorney's fees
under Article 2208 demands factual, legal, and
equitable justification.60Even when claimant is
compelled to litigate with third persons or to
incur expenses to protect his rights, still
attorney's fees may not be awarded where no
sufficient showing of bad faith could be reflected
in a party's persistence in a case other than
erroneous conviction of the righteousness of his
cause. 61
As to moral damages the law is Section 1,
Chapter 3, Title XVIII, Book IV of the Civil Code.
Article 2217 thereof defines what are included in
moral damages, while Article 2219 enumerates
the cases where they may be recovered, Article
2220 provides that moral damages may be
recovered in breaches of contract where the
defendant acted fraudulently or in bad faith.
RBS's claim for moral damages could possibly
fall only under item (10) of Article 2219, thereof
which reads:
(10) Acts and actions referred
to in Articles 21, 26, 27, 28,
29, 30, 32, 34, and 35.
Moral damages are in the category of an award
designed to compensate the claimant for actual
injury suffered. and not to impose a penalty on
the wrongdoer.62 The award is not meant to
enrich the complainant at the expense of the
defendant, but to enable the injured party to
obtain means, diversion, or amusements that
will serve to obviate then moral suffering he has
undergone. It is aimed at the restoration, within
the limits of the possible, of the spiritual status
quo ante, and should be proportionate to the
suffering inflicted.63 Trial courts must then guard
against the award of exorbitant damages; they
should exercise balanced restrained and
measured objectivity to avoid suspicion that it
was due to passion, prejudice, or corruption on
the part of the trial court. 64
The award of moral damages cannot be granted
in favor of a corporation because, being an
artificial person and having existence only in
legal contemplation, it has no feelings, no
emotions, no senses, It cannot, therefore,
experience physical suffering and mental
anguish, which call be experienced only by one
having a nervous system. 65 The statement
in People v. Manero 66 and Mambulao Lumber
Co. v. PNB 67 that a corporation may recover
moral damages if it "has a good reputation that
is debased, resulting in social humiliation" is
an obiter dictum. On this score alone the award
for damages must be set aside, since RBS is a
corporation.
The basic law on exemplary damages is
Section 5, Chapter 3, Title XVIII, Book IV of the
Civil Code. These are imposed by way of
example or correction for the public good, in
addition to moral, temperate, liquidated or
compensatory damages. 68 They are
recoverable in criminal cases as part of the civil
liability when the crime was committed with one
or more aggravating circumstances; 69 in quasi-
contracts, if the defendant acted with gross
negligence; 70 and in contracts and quasi-
contracts, if the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent
manner.71
It may be reiterated that the claim of RBS
against ABS-CBN is not based on contract,
quasi-contract, delict, or quasi-delict, Hence, the
claims for moral and exemplary damages can
only be based on Articles 19, 20, and 21 of the
Civil Code.
The elements of abuse of right under Article 19
are the following: (1) the existence of a legal
right or duty, (2) which is exercised in bad faith,
and (3) for the sole intent of prejudicing or
injuring another. Article 20 speaks of the
general sanction for all other provisions of law
which do not especially provide for their own
sanction; while Article 21 deals with acts contra
bonus mores, and has the following elements;
(1) there is an act which is legal, (2) but which is
contrary to morals, good custom, public order,
or public policy, and (3) and it is done with intent
to injure. 72
Verily then, malice or bad faith is at the core of
Articles 19, 20, and 21. Malice or bad faith
implies a conscious and intentional design to do
a wrongful act for a dishonest purpose or moral
obliquity. 73 Such must be substantiated by
evidence. 74

There is no adequate proof that ABS-CBN was

inspired by malice or bad faith. It was honestly
convinced of the merits of its cause after it had
undergone serious negotiations culminating in
its formal submission of a draft contract. Settled
is the rule that the adverse result of an action
does not per se make the action wrongful and
subject the actor to damages, for the law could
not have meant to impose a penalty on the right
to litigate. If damages result from a person's
exercise of a right, it is damnum absque
injuria.75

WHEREFORE, the instant petition is

GRANTED. The challenged decision of the
Court of Appeals in CA-G.R. CV No, 44125 is
hereby REVERSED except as to unappealed
award of attorney's fees in favor of VIVA
Productions, Inc.1âwphi1.nêt

No pronouncement as to costs.

SO ORDERED.
 FIRST DIVISION
[G.R. No. 141994. January 17, 2005]
FILIPINAS BROADCASTING NETWORK,
INC., petitioner, vs. AGO MEDICAL
AND EDUCATIONAL CENTER-
BICOL CHRISTIAN COLLEGE OF
MEDICINE, (AMEC-BCCM) and
ANGELITA F. AGO, respondents.
DECISION
CARPIO, J.:
The Case
This petition for review[1] assails the 4
January 1999 Decision[2] and 26 January 2000
Resolution of the Court of Appeals in CA-G.R.
CV No. 40151. The Court of Appeals affirmed
with modification the 14 December 1992
Decision[3] of the Regional Trial Court of Legazpi
City, Branch 10, in Civil Case No. 8236. The
Court of Appeals held Filipinas Broadcasting
Network, Inc. and its broadcasters Hermogenes
Alegre and Carmelo Rima liable for libel and
ordered them to solidarily pay Ago Medical and
Educational Center-Bicol Christian College of
Medicine moral damages, attorneys fees and
costs of suit.
The Antecedents
Expos is a radio documentary[4] program
hosted by Carmelo Mel Rima (Rima) and
Hermogenes Jun Alegre (Alegre).[5] Expos is
aired every morning over DZRC-AM which is
owned by Filipinas Broadcasting Network, Inc.
(FBNI). Expos is heard over Legazpi City, the
Albay municipalities and other Bicol areas.[6]
In the morning of 14 and 15 December
1989, Rima and Alegre exposed various alleged
complaints from students, teachers and parents
against Ago Medical and Educational Center-
Bicol Christian College of Medicine (AMEC) and
its administrators. Claiming that the broadcasts
were defamatory, AMEC and Angelita Ago (Ago),
as Dean of AMECs College of Medicine, filed a
complaint for damages[7] against FBNI, Rima
and Alegre on 27 February 1990. Quoted are
portions of the allegedly libelous broadcasts:
JUN ALEGRE:
Let us begin with the less burdensome: if you have
children taking medical course at AMEC-BCCM,
advise them to pass all subjects because if they
fail in any subject they will repeat their year level,
taking up all subjects including those they have
passed already. Several students had approached me
stating that they had consulted with the DECS which
told them that there is no such regulation. If [there] is
no such regulation why is AMEC doing the same?
xxx
Second: Earlier AMEC students in Physical
Therapy had complained that the course is not
recognized by DECS. xxx
Third: Students are required to take and pay for
the subject even if the subject does not have an
instructor - such greed for money on the part of
AMECs administration. Take the subject Anatomy:
students would pay for the subject upon enrolment
because it is offered by the school. However there
would be no instructor for such subject. Students
would be informed that course would be moved to a
later date because the school is still searching for the
appropriate instructor.
xxx
It is a public knowledge that the Ago Medical and
Educational Center has survived and has been
surviving for the past few years since its inception
because of funds support from foreign foundations.
If you will take a look at the AMEC premises youll
find out that the names of the buildings there are
foreign soundings. There is a McDonald Hall. Why
not Jose Rizal or Bonifacio Hall? That is a very
concrete and undeniable evidence that the support of
foreign foundations for AMEC is substantial, isnt it?
With the report which is the basis of the expose in
DZRC today, it would be very easy for detractors
and enemies of the Ago family to stop the flow of
support of foreign foundations who assist the
medical school on the basis of the latters purpose.
But if the purpose of the institution (AMEC) is to
deceive students at cross purpose with its reason for
being it is possible for these foreign foundations to
lift or suspend their donations temporarily.[8]
xxx
On the other hand, the administrators of AMEC-
BCCM, AMEC Science High School and the
AMEC-Institute of Mass Communication in their
effort to minimize expenses in terms of salary are
absorbing or continues to accept rejects. For
example how many teachers in AMEC are former
teachers of Aquinas University but were removed
because of immorality? Does it mean that the present
administration of AMEC have the total definite
moral foundation from catholic administrator of
Aquinas University. I will prove to you my friends,
that AMEC is a dumping ground, garbage, not
merely of moral and physical misfits. Probably
they only qualify in terms of intellect. The Dean of
Student Affairs of AMEC is Justita Lola, as the
family name implies. She is too old to work, being
an old woman. Is the AMEC administration
exploiting the very [e]nterprising or compromising
and undemanding Lola? Could it be that AMEC is
just patiently making use of Dean Justita Lola were
if she is very old. As in atmospheric situation zero
visibility the plane cannot land, meaning she is very
old, low pay follows. By the way, Dean Justita Lola
is also the chairman of the committee on scholarship
in AMEC. She had retired from Bicol University a
long time ago but AMEC has patiently made use of
her.
xxx
MEL RIMA:
xxx My friends based on the expose, AMEC is a
dumping ground for moral and physically misfit
people. What does this mean? Immoral and
physically misfits as teachers.
May I say Im sorry to Dean Justita Lola. But this is
the truth. The truth is this, that your are no longer fit
to teach. You are too old. As an aviation, your case
is zero visibility. Dont insist.
xxx Why did AMEC still absorb her as a teacher, a
dean, and chairman of the scholarship committee at
that. The reason is practical cost saving in salaries,
because an old person is not fastidious, so long as
she has money to buy the ingredient of beetle juice.
The elderly can get by thats why she (Lola) was
taken in as Dean.
xxx
xxx On our end our task is to attend to the interests
of students. It is likely that the students would be
influenced by evil. When they become members of
society outside of campus will be liabilities rather
than assets. What do you expect from a doctor who
while studying at AMEC is so much burdened with
unreasonable imposition? What do you expect from
a student who aside from peculiar problems because
not all students are rich in their struggle to improve
their social status are even more burdened with false
regulations. xxx[9] (Emphasis supplied)
The complaint further alleged that AMEC is
a reputable learning institution. With the
supposed exposs, FBNI, Rima and Alegre
transmitted malicious imputations, and as such,
destroyed plaintiffs (AMEC and Ago) reputation.
AMEC and Ago included FBNI as defendant for
allegedly failing to exercise due diligence in the
selection and supervision of its employees,
particularly Rima and Alegre.
On 18 June 1990, FBNI, Rima and Alegre,
through Atty. Rozil Lozares, filed an
Answer[10] alleging that the broadcasts against
AMEC were fair and true. FBNI, Rima and Alegre
claimed that they were plainly impelled by a
sense of public duty to report the goings-on in
AMEC, [which is] an institution imbued with
public interest.
Thereafter, trial ensued. During the
presentation of the evidence for the defense,
Atty. Edmundo Cea, collaborating counsel of
Atty. Lozares, filed a Motion to Dismiss[11] on
FBNIs behalf. The trial court denied the motion
to dismiss. Consequently, FBNI filed a separate
Answer claiming that it exercised due diligence
in the selection and supervision of Rima and
Alegre. FBNI claimed that before hiring a
broadcaster, the broadcaster should (1) file an
application; (2) be interviewed; and (3) undergo
an apprenticeship and training program after
passing the interview. FBNI likewise claimed that
it always reminds its broadcasters to observe
truth, fairness and objectivity in their broadcasts
and to refrain from using libelous and indecent
language. Moreover, FBNI requires all
broadcasters to pass the Kapisanan ng mga
Brodkaster sa Pilipinas (KBP) accreditation test
and to secure a KBP permit.
On 14 December 1992, the trial court
rendered a Decision[12] finding FBNI and Alegre
liable for libel except Rima. The trial court held
that the broadcasts are libelous per se. The trial
court rejected the broadcasters claim that their
utterances were the result of straight reporting
because it had no factual basis. The
broadcasters did not even verify their reports
before airing them to show good faith. In holding
FBNI liable for libel, the trial court found that
FBNI failed to exercise diligence in the selection
and supervision of its employees.
In absolving Rima from the charge, the trial
court ruled that Rimas only participation was
when he agreed with Alegres expos. The trial
court found Rimas statement within the bounds
of freedom of speech, expression, and of the
press. The dispositive portion of the decision
reads:
WHEREFORE, premises considered, this court finds
for the plaintiff. Considering the degree of
damages caused by the controversial utterances,
which are not found by this court to be really
very serious and damaging, and there being no
showing that indeed the enrollment of plaintiff
school dropped, defendants Hermogenes Jun
Alegre, Jr. and Filipinas Broadcasting Network
(owner of the radio station DZRC), are hereby
jointly and severally ordered to pay plaintiff Ago
Medical and Educational Center-Bicol Christian
College of Medicine (AMEC-BCCM) the amount
of P300,000.00 moral damages, plus P30,000.00
reimbursement of attorneys fees, and to pay the costs
of suit.
SO ORDERED. [13] (Emphasis supplied)
Both parties, namely, FBNI, Rima and
Alegre, on one hand, and AMEC and Ago, on the
other, appealed the decision to the Court of
Appeals. The Court of Appeals affirmed the trial
courts judgment with modification. The appellate
court made Rima solidarily liable with FBNI and
Alegre. The appellate court denied Agos claim
for damages and attorneys fees because the
broadcasts were directed against AMEC, and not
against her. The dispositive portion of the Court
of Appeals decision reads:
WHEREFORE, the decision appealed from is
hereby AFFIRMED, subject to the modification that
broadcaster Mel Rima is SOLIDARILY
ADJUDGED liable with FBN[I] and Hermo[g]enes
Alegre.
SO ORDERED.[14]
FBNI, Rima and Alegre filed a motion for
reconsideration which the Court of Appeals
denied in its 26 January 2000 Resolution.
Hence, FBNI filed this petition.[15]
The Ruling of the Court of Appeals
The Court of Appeals upheld the trial courts
ruling that the questioned broadcasts are
libelous per se and that FBNI, Rima and Alegre
failed to overcome the legal presumption of
malice. The Court of Appeals found Rima and
Alegres claim that they were actuated by their
moral and social duty to inform the public of the
students gripes as insufficient to justify the
utterance of the defamatory remarks.
Finding no factual basis for the imputations
against AMECs administrators, the Court of
Appeals ruled that the broadcasts were made
with reckless disregard as to whether they were
true or false. The appellate court pointed out that
FBNI, Rima and Alegre failed to present in court
any of the students who allegedly complained
against AMEC. Rima and Alegre merely gave a
single name when asked to identify the students.
According to the Court of Appeals, these IV. WHETHER FBNI IS SOLIDARILY
circumstances cast doubt on the veracity of the LIABLE WITH RIMA AND
broadcasters claim that they were impelled by ALEGRE FOR PAYMENT OF
their moral and social duty to inform the public MORAL DAMAGES, ATTORNEYS
about the students gripes. FEES AND COSTS OF SUIT.
The Court of Appeals found Rima also
liable for libel since he remarked that (1) AMEC- The Courts Ruling
BCCM is a dumping ground for morally and
physically misfit teachers; (2) AMEC obtained the
services of Dean Justita Lola to minimize
We deny the petition.
expenses on its employees salaries; and (3)
AMEC burdened the students with unreasonable This is a civil action for damages as a result
imposition and false regulations.[16] of the allegedly defamatory remarks of Rima and
Alegre against AMEC.[17] While AMEC did not
The Court of Appeals held that FBNI failed
point out clearly the legal basis for its complaint,
to exercise due diligence in the selection and
a reading of the complaint reveals that AMECs
supervision of its employees for allowing Rima
cause of action is based on Articles 30 and 33 of
and Alegre to make the radio broadcasts without
the Civil Code. Article 30[18] authorizes a
the proper KBP accreditation. The Court of
separate civil action to recover civil liability
Appeals denied Agos claim for damages and
arising from a criminal offense. On the other
attorneys fees because the libelous remarks
hand, Article 33[19] particularly provides that the
were directed against AMEC, and not against
injured party may bring a separate civil action for
her. The Court of Appeals adjudged FBNI, Rima
damages in cases of defamation, fraud, and
and Alegre solidarily liable to pay AMEC moral
physical injuries. AMEC also invokes Article
damages, attorneys fees and costs of suit.
19[20] of the Civil Code to justify its claim for
damages. AMEC cites Articles 2176[21] and
2180[22] of the Civil Code to hold FBNI solidarily
Issues
liable with Rima and Alegre.
FBNI raises the following issues for
I
resolution:
.
Whether the broadcasts are libelous
I. WHETHER THE BROADCASTS ARE
LIBELOUS;
A libel[23] is a public and malicious
II. WHETHER AMEC IS ENTITLED TO imputation of a crime, or of a vice or defect, real
MORAL DAMAGES; or imaginary, or any act or omission, condition,
status, or circumstance tending to cause the
dishonor, discredit, or contempt of a natural or
III. WHETHER THE AWARD OF
juridical person, or to blacken the memory of one
ATTORNEYS FEES IS PROPER;
who is dead.[24]
and
 There is no question that the broadcasts
were made public and imputed to AMEC defects
or circumstances tending to cause it dishonor,
discredit and contempt. Rima and Alegres
remarks such as greed for money on the part of
AMECs administrators; AMEC is a dumping
ground, garbage of xxx moral and physical
misfits; and AMEC students who graduate will be
liabilities rather than assets of the society are
libelous per se. Taken as a whole, the
broadcasts suggest that AMEC is a money-
making institution where physically and morally
unfit teachers abound.
However, FBNI contends that the
broadcasts are not malicious. FBNI claims that
Rima and Alegre were plainly impelled by their
civic duty to air the students gripes. FBNI alleges
that there is no evidence that ill will or spite
motivated Rima and Alegre in making the
broadcasts. FBNI further points out that Rima
and Alegre exerted efforts to obtain AMECs side
and gave Ago the opportunity to defend AMEC
and its administrators. FBNI concludes that since
there is no malice, there is no libel.
FBNIs contentions are untenable.
Every defamatory imputation is presumed
malicious.[25] Rima and Alegre failed to show
adequately their good intention and justifiable
motive in airing the supposed gripes of the
students. As hosts of a documentary or public
affairs program, Rima and Alegre should have
presented the public issues free
from inaccurate and misleading
information.[26] Hearing the students alleged
complaints a month before the expos,[27] they
had sufficient time to verify their sources and
information. However, Rima and Alegre hardly
made a thorough investigation of the students
alleged gripes. Neither did they inquire about nor
confirm the purported irregularities in AMEC from
the Department of Education, Culture and
Sports. Alegre testified that he merely went to
AMEC to verify his report from an alleged AMEC
official who refused to disclose any information.
Alegre simply relied on the words of the students
because they were many and not because there
is proof that what they are saying is true. [28] This
plainly shows Rima and Alegres reckless
disregard of whether their report was true or not.
Contrary to FBNIs claim, the broadcasts
were not the result of straight reporting.
Significantly, some courts in the United States
apply the privilege of neutral reportage in libel
cases involving matters of public interest or
public figures. Under this privilege, a republisher
who accurately and disinterestedly reports
certain defamatory statements made against
public figures is shielded from liability, regardless
of the republishers subjective awareness of the
truth or falsity of the accusation.[29] Rima and
Alegre cannot invoke the privilege of neutral
reportage because unfounded comments
abound in the broadcasts. Moreover, there is no
existing controversy involving AMEC when the
broadcasts were made. The privilege of neutral
reportage applies where the defamed person is
a public figure who is involved in an existing
controversy, and a party to that controversy
makes the defamatory statement.[30]
However, FBNI argues vigorously that
malice in law does not apply to this case.
Citing Borjal v. Court of Appeals,[31] FBNI
contends that the broadcasts fall within the
coverage of qualifiedly privileged
communications for being commentaries on
matters of public interest. Such being the case,
AMEC should prove malice in fact or actual
malice. Since AMEC allegedly failed to prove
actual malice, there is no libel.
FBNIs reliance on Borjal is misplaced.
In Borjal, the Court elucidated on the doctrine of
fair comment, thus:
[F]air commentaries on matters of public interest are
privileged and constitute a valid defense in an action
for libel or slander. The doctrine of fair comment
means that while in general every discreditable
imputation publicly made is deemed false, because
every man is presumed innocent until his guilt is
judicially proved, and every false imputation is
deemed malicious, nevertheless, when the
discreditable imputation is directed against a public
person in his public capacity, it is not necessarily
actionable. In order that such discreditable
imputation to a public official may be actionable,
it must either be a false allegation of fact or a
comment based on a false supposition. If the
comment is an expression of opinion, based on
established facts, then it is immaterial that the
opinion happens to be mistaken, as long as it might
reasonably be inferred from the facts.[32] (Emphasis
supplied)
True, AMEC is a private learning institution
whose business of educating students is
genuinely imbued with public interest. The
welfare of the youth in general and AMECs
students in particular is a matter which the public
has the right to know. Thus, similar to the
newspaper articles in Borjal, the subject
broadcasts dealt with matters of public interest.
However, unlike in Borjal, the questioned
broadcasts are not based on established facts.
The record supports the following findings of the
trial court:
xxx Although defendants claim that they were
motivated by consistent reports of students and
parents against plaintiff, yet, defendants have not
presented in court, nor even gave name of a single
student who made the complaint to them, much less
present written complaint or petition to that effect.
To accept this defense of defendants is too
dangerous because it could easily give license to the
media to malign people and establishments based on
flimsy excuses that there were reports to them
although they could not satisfactorily establish it.
Such laxity would encourage careless and
irresponsible broadcasting which is inimical to
public interests.
Secondly, there is reason to believe that defendant
radio broadcasters, contrary to the mandates of their
duties, did not verify and analyze the truth of the
reports before they aired it, in order to prove that
they are in good faith.
Alegre contended that plaintiff school had no permit
and is not accredited to offer Physical Therapy
courses. Yet, plaintiff produced a certificate coming
from DECS that as of Sept. 22, 1987 or more than 2
years before the controversial broadcast,
accreditation to offer Physical Therapy course had
already been given the plaintiff, which certificate is
signed by no less than the Secretary of Education
and Culture herself, Lourdes R. Quisumbing (Exh.
C-rebuttal). Defendants could have easily known this
were they careful enough to verify. And yet,
defendants were very categorical and sounded too
positive when they made the erroneous report that
plaintiff had no permit to offer Physical Therapy
courses which they were offering.
The allegation that plaintiff was getting tremendous
aids from foreign foundations like Mcdonald
Foundation prove not to be true also. The truth is
there is no Mcdonald Foundation existing. Although
a big building of plaintiff school was given the name
Mcdonald building, that was only in order to honor
the first missionary in Bicol of plaintiffs religion, as
explained by Dr. Lita Ago. Contrary to the claim of
defendants over the air, not a single centavo appears
to be received by plaintiff school from the
aforementioned McDonald Foundation which does
not exist.
Defendants did not even also bother to prove their
claim, though denied by Dra. Ago, that when
medical students fail in one subject, they are made to
repeat all the other subject[s], even those they have
already passed, nor their claim that the school
charges laboratory fees even if there are no
laboratories in the school. No evidence was
presented to prove the bases for these claims, at least
in order to give semblance of good faith.
As for the allegation that plaintiff is the dumping
ground for misfits, and immoral teachers,
defendant[s] singled out Dean Justita Lola who is
said to be so old, with zero visibility already. Dean
Lola testified in court last Jan. 21, 1991, and was
found to be 75 years old. xxx Even older people
prove to be effective teachers like Supreme Court
Justices who are still very much in demand as law
professors in their late years. Counsel for defendants
is past 75 but is found by this court to be still very
sharp and effective. So is plaintiffs counsel.
Dr. Lola was observed by this court not to be
physically decrepit yet, nor mentally infirmed, but is
still alert and docile.
The contention that plaintiffs graduates become
liabilities rather than assets of our society is a mere
conclusion. Being from the place himself, this court
is aware that majority of the medical graduates of
plaintiffs pass the board examination easily and
become prosperous and responsible professionals.[33]
Had the comments been an expression of
opinion based on established facts, it is
immaterial that the opinion happens to be
mistaken, as long as it might reasonably be
inferred from the facts.[34] However, the
comments of Rima and Alegre were not backed
up by facts. Therefore, the broadcasts are not
privileged and remain libelous per se.
The broadcasts also violate the Radio
Code[35] of the Kapisanan ng mga Brodkaster sa
Pilipinas, Ink. (Radio Code). Item I(B) of the
Radio Code provides:
B. PUBLIC AFFAIRS, PUBLIC ISSUES AND
COMMENTARIES
1. x x x
4. Public affairs program shall present
public issues free from personal
bias, prejudice and inaccurate and
misleading information. x x x
Furthermore, the station shall strive
to present balanced discussion of
issues. x x x.
xxx
7. The station shall be responsible at all
times in the supervision of public
affairs, public issues and
commentary programs so that they
conform to the provisions and
standards of this code.
8. It shall be the responsibility of the
newscaster, commentator, host and
announcer to protect public
interest, general welfare and good
order in the presentation of public
affairs and public
issues.[36](Emphasis supplied)
The broadcasts fail to meet the standards
prescribed in the Radio Code, which lays down
the code of ethical conduct governing
practitioners in the radio broadcast industry. The
Radio Code is a voluntary code of conduct
imposed by the radio broadcast industry on its
own members. The Radio Code is a public
warranty by the radio broadcast industry that
radio broadcast practitioners are subject to a
code by which their conduct are measured for
lapses, liability and sanctions.
 The public has a right to expect and
demand that radio broadcast practitioners live up
to the code of conduct of their profession, just like
other professionals. A professional code of
conduct provides the standards for determining
whether a person has acted justly, honestly and
with good faith in the exercise of his rights and
performance of his duties as required by Article
19[37] of the Civil Code. A professional code of
conduct also provides the standards for
determining whether a person who willfully
causes loss or injury to another has acted in a
manner contrary to morals or good customs
under Article 21[38] of the Civil Code.
I However, we find the award of P300,000
I moral damages unreasonable. The record
. shows that even though the broadcasts were
Whether AMEC is entitled to moral damages
FBNI contends that AMEC is not entitled to
moral damages because it is a corporation.[39]
A juridical person is generally not entitled to
moral damages because, unlike a natural
person, it cannot experience physical suffering or
such sentiments as wounded feelings, serious
anxiety, mental anguish or moral shock.[40] The
Court of Appeals cites Mambulao Lumber Co.
v. PNB, et al.[41] to justify the award of moral
damages. However, the Courts statement
in Mambulao that a corporation may have a
good reputation which, if besmirched, may also
be a ground for the award of moral damages is
an obiter dictum.[42]
Nevertheless, AMECs claim for moral
damages falls under item 7 of Article 2219[43] of
the Civil Code. This provision expressly
authorizes the recovery of moral damages in
cases of libel, slander or any other form of
defamation. Article 2219(7) does not qualify
whether the plaintiff is a natural or juridical
person. Therefore, a juridical person such as a
corporation can validly complain for libel or any
other form of defamation and claim for moral
damages.[44]
Moreover, where the broadcast is
libelous per se, the law implies damages.[45] In
such a case, evidence of an honest mistake or
the want of character or reputation of the party
libeled goes only in mitigation of
damages.[46] Neither in such a case is the plaintiff
required to introduce evidence of actual
damages as a condition precedent to the
recovery of some damages.[47] In this case, the
broadcasts are libelous per se. Thus, AMEC is
entitled to moral damages.
libelous per se, AMEC has not suffered any
substantial or material damage to its reputation.
Therefore, we reduce the award of moral
damages from P300,000 to P150,000.
III.
Whether the award of attorneys fees is
proper
FBNI contends that since AMEC is not
entitled to moral damages, there is no basis for
the award of attorneys fees. FBNI adds that the
instant case does not fall under the enumeration
in Article 2208[48] of the Civil Code.
The award of attorneys fees is not proper
because AMEC failed to justify satisfactorily its
claim for attorneys fees. AMEC did not adduce
evidence to warrant the award of attorneys fees.
Moreover, both the trial and appellate courts
failed to explicitly state in their respective
decisions the rationale for the award of attorneys
fees.[49] In Inter-Asia Investment Industries,
Inc. v. Court of Appeals,[50] we held that:
[I]t is an accepted doctrine that the award thereof as
an item of damages is the exception rather than the
rule, and counsels fees are not to be awarded every
time a party wins a suit. The power of the court to
award attorneys fees under Article 2208 of the
Civil Code demands factual, legal and equitable
justification, without which the award is a
conclusion without a premise, its basis being
improperly left to speculation and conjecture. In
all events, the court must explicitly state in the text
of the decision, and not only in the decretal portion
thereof, the legal reason for the award of attorneys
fees.[51](Emphasis supplied)
While it mentioned about the award of
attorneys fees by stating that it lies within the
discretion of the court and depends upon the
circumstances of each case, the Court of
Appeals failed to point out any circumstance to
justify the award.
I
V
.
Whether FBNI is solidarily liable with Rima
and Alegre
for moral damages, attorneys fees
and costs of suit
FBNI contends that it is not solidarily liable
with Rima and Alegre for the payment of
damages and attorneys fees because it
exercised due diligence in the selection and
supervision of its employees, particularly Rima
and Alegre. FBNI maintains that its broadcasters,
including Rima and Alegre, undergo a very
regimented process before they are allowed to
go on air. Those who apply for broadcaster are
subjected to interviews, examinations and an
apprenticeship program.
FBNI further argues that Alegres age and
lack of training are irrelevant to his competence
as a broadcaster. FBNI points out that the minor
deficiencies in the KBP accreditation of Rima and
Alegre do not in any way prove that FBNI did not
exercise the diligence of a good father of a family
in selecting and supervising them. Rimas
accreditation lapsed due to his non-payment of
the KBP annual fees while Alegres accreditation
card was delayed allegedly for reasons
attributable to the KBP Manila Office. FBNI
claims that membership in the KBP is merely
voluntary and not required by any law or
government regulation.
FBNIs arguments do not persuade us.
The basis of the present action is a tort.
Joint tort feasors are jointly and severally liable
for the tort which they commit.[52] Joint tort
feasors are all the persons who command,
instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the
commission of a tort, or who approve of it after it
is done, if done for their benefit.[53] Thus, AMEC
correctly anchored its cause of action against
FBNI on Articles 2176 and 2180 of the Civil
Code.
As operator of DZRC-AM and employer of
Rima and Alegre, FBNI is solidarily liable to pay
for damages arising from the libelous
broadcasts. As stated by the Court of Appeals,
recovery for defamatory statements published by
radio or television may be had from the owner of
the station, a licensee, the operator of the
station, or a person who procures, or
participates in, the making of the defamatory
statements.[54] An employer and employee are
solidarily liable for a defamatory statement by the
employee within the course and scope of his or
her employment, at least when the employer
authorizes or ratifies the defamation.[55] In this
case, Rima and Alegre were clearly performing
their official duties as hosts of FBNIs radio
program Expos when they aired the broadcasts.
FBNI neither alleged nor proved that Rima and
Alegre went beyond the scope of their work at
that time. There was likewise no showing that
FBNI did not authorize and ratify the defamatory WHEREFORE, we DENY the instant
broadcasts. petition. We AFFIRM the Decision of 4 January
1999 and Resolution of 26 January 2000 of the
Moreover, there is insufficient evidence on Court of Appeals in CA-G.R. CV No. 40151 with
record that FBNI exercised due diligence in the MODIFICATION that the award of moral
the selection and supervision of its damages is reduced from P300,000 to P150,000
employees, particularly Rima and Alegre. FBNI and the award of attorneys fees is deleted. Costs
merely showed that it exercised diligence in against petitioner.
the selection of its broadcasters without
introducing any evidence to prove that it SO ORDERED.
observed the same diligence in
the supervision of Rima and Alegre. FBNI did
not show how it exercised diligence in
supervising its broadcasters. FBNIs alleged
constant reminder to its broadcasters to observe
truth, fairness and objectivity and to refrain from
using libelous and indecent language is not
enough to prove due diligence in the supervision
of its broadcasters. Adequate training of the
broadcasters on the industrys code of conduct,
sufficient information on libel laws, and
continuous evaluation of the broadcasters
performance are but a few of the many ways of
showing diligence in the supervision of
broadcasters.
FBNI claims that it has taken all the
precaution in the selection of Rima and Alegre
as broadcasters, bearing in mind their
qualifications. However, no clear and convincing
evidence shows that Rima and Alegre underwent
FBNIs regimented process of application.
Furthermore, FBNI admits that Rima and Alegre
had deficiencies in their KBP
accreditation,[56] which is one of FBNIs
requirements before it hires a broadcaster.
Significantly, membership in the KBP, while
voluntary, indicates the broadcasters strong
commitment to observe the broadcast industrys
rules and regulations. Clearly, these
circumstances show FBNIs lack of diligence in
selecting and supervising Rima and Alegre.
Hence, FBNI is solidarily liable to pay damages
together with Rima and Alegre.
 Republic of the Philippines
This is a petition for review Petitioner and NS Electronics (Philippines),
Supreme Court
Manila on certiorari under Rule 45 of the Rules of Court Inc., the predecessor-in-interest of respondent TEC,

seeking the reversal of the Decision[1] of the Court of were parties to two separate contracts denominated as

THIRD DIVISION Appeals (CA) dated June 18, 1997 and its Agreements for the Sale of Electric Energy under the

Resolution[2] dated December 3, 1997 in CA-G.R. following account numbers: 09341-1322-

MANILA ELECTRIC G.R. No.
COMPANY, 131723 CV No. 40282 denying the appeal filed by petitioner 16[3] and 09341-1812-13.[4] Under the aforesaid
Peti
tion Present: Manila Electric Company. agreements, petitioner undertook to supply TECs
ers,
YNARES- building known as Dyna Craft International Manila
- versus - SANTIAGO
, J., The facts of the case, as culled from the (DCIM) located at Electronics Avenue, Food
Chairperson
T.E.A.M. ELECTRONICS , records, are as follows: Terminal Complex, Taguig, Metro Manila, with
CORPORATION, AUSTRIA-
TECHNOLOGY MARTINEZ Respondent T.E.A.M. Electronics electric power. Another contract was entered into for
ELECTRONICS ASSEMBLY ,
and MANAGEMENT CHICO- Corporation (TEC) was formerly known as NS the supply of electric power to TECs NS Building
PACIFIC CORPORATION; NAZARIO,
and ULTRA ELECTRONICS NACHURA, Electronics (Philippines), Inc. before 1982 and under Account No. 19389-0900-10.
INSTRUMENTS, INC., and
Res REYES, JJ. National Semi-Conductors (Phils.) before 1988. TEC In September 1986, TEC, under its former
pon
dent Promulgated is wholly owned by respondent Technology name National Semi-Conductors (Phils.) entered into
s. :
Electronics Assembly and Management Pacific a Contract of Lease[5] with respondent Ultra
December
13, 2007 Corporation (TPC). On the other hand, petitioner Electronics Industries, Inc. (Ultra) for the use of the
x-------------------------------------------------------------- Manila Electric Company (Meralco) is a utility formers DCIM building for a period of five years or
----------------------x
company supplying electricity in the Metro Manila until September 1991. Ultra was, however, ejected

DECISION area. from the premises on February 12, 1988 by virtue of

NACHURA, J.: a court order, for repeated violation of the terms and

conditions of the lease contract.

 period, TECs Managing Director, Mr. Bobby Tan, issues threshed out in the regular courts. Prior to the

On September 28, 1987, a team of referred the demand letter to Ultra[9] which, in turn, reconnection, or on June 7, 1988, petitioner

petitioners inspectors conducted a surprise inspection informed TEC that its Executive Vice-President had conducted a scheduled inspection of the questioned

of the electric meters installed at the DCIM building, met with petitioners representative. Ultra further meters and found them to have been tampered

witnessed by Ultras[6]representative, Mr. Willie intimated that assuming that there was tampering of anew.[12]

Abangan. The two meters covered by account the meters, petitioners assessment was Meanwhile, on April 25, 1988, petitioner

numbers 09341-1322-16 and 09341-1812-13, excessive.[10] For failure of TEC to pay the differential conducted another inspection, this time, in TECs NS

were found to be allegedly tampered with and did not billing, petitioner disconnected the electricity supply Building. The inspection allegedly revealed that the

register the actual power consumption in the to the DCIM building on April 29, 1988. electric meters were not registering the correct power

building. The results of the inspection were reflected consumption. Petitioner, thus, sent a letter dated June

in the Service Inspection Reports[7] prepared by the TEC demanded from petitioner the 18, 1988 demanding payment of P280,813.72

team. reconnection of electrical service, claiming that it had representing the differential billing.[13] TEC denied

nothing to do with the alleged tampering but the latter petitioners allegations and claim in a letter dated June

In a letter dated November 25, 1987, refused to heed the demand. Hence, TEC filed a 29, 1988.[14] Petitioner, thus, sent TEC another letter

petitioner informed TEC of the results of the complaint on May 27, 1988 before the Energy demanding payment of the aforesaid amount, with a

inspection and demanded from the latter the payment Regulatory Board (ERB) praying that electric power warning that the electric service would be

of P7,040,401.01 representing its unregistered be restored to the DCIM building.[11] The ERB disconnected in case of continued refusal to pay the

consumption from February 10, immediately ordered the reconnection of the service differential billing.[15] To avert the impending

1986 until September 28, 1987, as a result of the but petitioner complied with it only on October 12, disconnection of electrical service, TEC paid the

alleged tampering of the meters.[8] TEC received the 1988 after TEC paid P1,000,000.00, under above amount, under protest.[16]

letters on January 7, 1988.Since Ultra was in protest. The complaint before the ERB was later

possession of the subject building during the covered withdrawn as the parties deemed it best to have the
 the said
On January 13, 1989, TEC and TPC filed a 1992, the trial court rendered a Decision in favor of amount
shall have
complaint for damages against petitioner and respondents TEC and TPC, and against respondent been fully
paid;
Ultra[17] before the Regional Trial Court (RTC) Ultra and petitioner. The pertinent portion of the (2) O
rdering
of Pasig. The case was raffled to Branch 162 and was decision reads: defendant
Meralco to
docketed as Civil Case No. 56851.[18] Upon the filing pay to
WHEREFORE, judgment is plaintiff
of the parties answer to the complaint, pre-trial was hereby rendered in this case in TEC the
favor of the plaintiffs and against amount
scheduled. the defendants as follows: of P280,81
3.72 as
(1) O actual
rdering damages
At the pre-trial, the parties agreed to limit both with legal
defendants rate of
the issues, as follows: Meralco interest
and also
ULTRA from Janua
1. Whether or not the Electronics ry 19,
defendant Meralco is liable for Instrument 1989;
the plaintiffs disconnection of s, Inc. to (3) O
electric service jointly and rdering
at DCIM Building. severally defendant
reimburse Meralco to
2. Whether or not the plaintiff pay to
plaintiff is liable for (sic) the TEC actual plaintiff
defendant for the differential damages in TPC the
billings in the amount the amount amount
of P7,040,401.01. of ONE of P150,00
MILLION 0.00 as
3. Whether or not the PESOS actual
plaintiff is liable to defendant for with legal damages
exemplary damages.[19] rate of with
interest interest at
from the legal rate
date of the from Janua
For failure of the parties to reach an amicable filing of ry 19,
this case 1989;
settlement, trial on the merits ensued. On June 17, on January (4) C
19, ondemning
1989 until defendant
 Meralco to
pay both tampering the meter installations. The deformed
plaintiffs
moral condition of the meter seal and the existence of an Ultra and petitioner appealed to the CA
damages in
the amount opening in the wire duct leading to the transformer which affirmed the RTC decision, with a modification
pf P500,00
0.00; vault did not, in themselves, prove the alleged of the amount of actual damages and interest
(5) C
ondemning tampering, especially since access to the transformer thereon. The dispositive portion of the CA decision
defendant
Meralco to was given only to petitioners employees.[21] The dated June 18, 1997, states:
pay both
plaintiffs sudden drop in TECs (or Ultras) electric consumption
corrective WHEREFORE, this
and/or did not, per se, show meter tampering. The delay in Court renders judgment
exemplary affirming in toto the Decision
damages in the sending of notice of the results of the inspection rendered by the trial court with
the amount the slight modification that the
of P200,00 was likewise viewed by the court as evidence of interest at legal rate shall be
0.00; computed from January 13, 1989
(6) O inefficiency and arbitrariness on the part of and that Meralco shall pay
rdering plaintiff T.E.A.M. Electronics
defendant petitioner. More importantly, petitioners act of Corporation and Technology
Meralco to Electronics Assembly and
pay disconnecting the DCIM buildings electric supply Management Pacific Corporation
attorneys the sum of P150,000.00 per
fees in the constituted bad faith and thus makes it liable for month for five (5) months for
amount actual damages incurred when it
of P200,00 was compelled to lease a
damages.[22] The court further denied petitioners
0.00 generator set with interest at the
claim of differential billing primarily on the ground of legal rate from the above-stated
Costs against date.
defendant Meralco.
equitable negligence.[23] Considering that TEC and
SO ORDERED.[24]
SO
TPC paid P1,000,000.00 to avert the disconnection of
ORDERED.[
20]
electric power; and because Ultra manifested to settle
The appellate court agreed with the RTCs
the claims of petitioner, the court imposed solidary
conclusion. In addition, it considered petitioner
The trial court found the evidence of
liability on both Ultra and petitioner for the payment
negligent for failing to discover the alleged defects in
petitioner insufficient to prove that TEC was guilty of
of the P1,000,000.00.
 this electric meter
the electric meters; in belatedly notifying TEC and its DCIM Building.
TPC of the results of the inspection; and in 6. In finding that there was no
notice of disconnection.
disconnecting the electric power without prior notice.
7. In finding that petitioner
MERALCO was negligent in
informing TEC of the alleged
Petitioner now comes before this Court in this petition tampering.
in
14. In not declaring
that petitioner is entitled to the
differential bill.
15. In not declaring
that respondents are liable to
petitioner for exemplary
damages, attorneys fee and
expenses for litigation.[25]

for review on certiorari contending that: 8. In making the finding that it is

The Court of Appeals committed
grievous errors and decided
matters of substance contrary to
law and the rulings of this
Honorable Court:
difficult to believe that when The petition must fail.
petitioner MERALCO inspected
on June 7, 1988 the meter
installations, they were found to
be tampered. The issues for resolution can be summarized as

1. In finding that the issue in the 9. In
case is whether there was declaring that petitioner
deliberate tampering of the MERALCO estopped from
metering installations at the claiming any tampering of the
building owned by TEC. meters.
follows: 1) whether or not TEC tampered with the
electric meters installed at its DCIM and NS
buildings; 2) If so, whether or not it is liable for the

2. In not finding that the issue is: 10. In finding that the differential billing as computed by petitioner; and 3)
whether or not, based on the method employed by
tampered meters, whether or not MERALCO to as certain (sic) the whether or not petitioner was justified in
petitioner is entitled to correct amount of electricity
differential billing, and if so, how consumed is questionable; disconnecting the electric power supply in TECs
much.
11. In declaring that DCIM building.
3. In declaring that petitioner ME MERALCO all throughout its
RALCO had the burden of proof dealings with TEC took on an
to show by clear and convincing attitude which is oppressive,
evidence that with respect to the wanton and reckless. Petitioner insists that the tampering of the electric
tampered meters that TEC and/or
TPC authored their tampering. 12. In declaring that meters installed at the DCIM and NS buildings owned
MERALCO acted arbitrarily in
4. In finding that petitioner inspecting TECs DCIM building by respondent TEC has been established by
Meralco should not have held and the NS building.
TEC and/or TPC responsible for overwhelming evidence, as specifically shown by the
the acts of Ultra. 13. In declaring that
respondents TEC and TPC are
shorting devices found during the inspection. Thus,
5. In finding that TEC should not entitled to the damages which it
be held liable for the tampering of awarded.
 1985s 87,600 recorded
says petitioner, tampering of the meter is no longer an saw that the meter seal was deformed. In addition, consumption, the same dropped
to 18,600 kwh/month or a
issue. petitioner, through the Supervising Engineer of its difference-drop of 69,000
kwh/month. Surely, a drop of
Special Billing Analysis Department,[27] claimed that 53,700 could be equally
categorized as a sudden
It is obvious that petitioner wants this Court to revisit there was a sudden and unexplainable drop in TECs drop amounting to 69,000 which,
incidentally, the Meralco claimed
the factual findings of the lower courts. Well- electrical consumption starting February 10, as unexplainable. x x x.[29]

established is the doctrine that under Rule 45 of the 1986. On the basis of the foregoing, petitioner

Rules of Court, only questions of law, not of fact, may concluded that the electric meters were tampered The witnesses for petitioner who testified

be raised before the Court. We would like to stress with. on the alleged tampering of the electric meters,

that this Court is not a trier of facts and may not re- However, contrary to petitioners claim that there was declared that tampering is committed by consumers to

examine and weigh anew the respective evidence of a drastic and unexplainable drop in TECs electric prevent the meter from registering the correct amount

the parties. Factual findings of the trial court, consumption during the affected period, the Pattern of of electric consumption, and result in a reduced

especially those affirmed by the Court of Appeals, are TECs Electrical Consumption[28] shows that the monthly electric bill, while continuing to enjoy the

binding on this Court.[26] sudden drop is not peculiar to the said same power supply. Only the registration of actual

period. Noteworthy is the observation of the RTC in electric energy consumption, not the supply of

Looking at the record, we note that petitioner claims this wise: electricity, is affected when a meter is tampered

to have discovered three incidences of meter- with.[30] The witnesses claimed that after the
In fact, in Account No. 09341-
tampering; twice in the DCIM building on September 1812-13 (heretofore referred as inspection, the tampered electric meters were
Account/Meter No. 2), as
28, 1987 and June 7, 1988; and once in the NS evidenced by Exhibits 35 and 35- corrected, so that they would register the correct
A, there was likewise a sudden
building on April 24, 1988. drop of electrical consumption consumption of TEC. Logically, then, after the
from the year 1984 which
The first instance was supposedly discovered recorded an average 141,300 correction of the allegedly tampered meters, the
kwh/month to 1985 which
on September 28, 1987. The inspector allegedly recorded an average kwh/month customers registered consumption would go up.
at 87,600 or a difference-drop
found the presence of a short circuiting device and of 53,700 kwh/month; from
 In this case, the period claimed to have been 22,200 kwh on the respective accounts. These figures jeopardize itself in the eyes of petitioner.[34] If it is true

affected by the tampered electric meters is from clearly show that there was no palpably drastic that there was evidence of tampering found

February 1986 until September 1987. Based on difference between the consumption before and after on September 28, 1987 and again on June 7, 1988, the

petitioners Billing Record[31](for the DCIM building), the inspection, casting a cloud of doubt over better view would be that the defective meters were

TECs monthly electric consumption on Account No. petitioners claim of meter-tampering. Indeed, Ultras not actually corrected after the first inspection. If so,

9341-1322-16 was between 4,500 and 27,000 explanation that the corporation was losing; thus, it then Manila Electric Company v. Macro Textile Mills

kwh.[32] Account No. 9341-1812-13 showed a had lesser consumption of electric power appear to be Corporation[35] would apply, where we said that we

monthly consumption between 9,600 and 34,200 the more plausible reason for the drop in electric cannot sanction a situation wherein the defects in the

kwh.[33] It is interesting to note that, after correction consumption. electric meter are allowed to continue indefinitely

of the allegedly tampered meters, TECs monthly until suddenly, the public utilities demand payment

electric consumption from October 1987 to February Petitioner likewise claimed that when the for the unrecorded electricity utilized when they could

1988 (the last month that Ultra occupied the DCIM subject meters were again inspected on June 7, 1988, have remedied the situation immediately. Petitioners

building) was between 8,700 and 24,300 kwh in its they were found to have been tampered anew. The failure to do so may encourage neglect of public

first account, and 16,200 to 46,800 kwh on the second Court notes that prior to the inspection, TEC was utilities to the detriment of the consuming public.

account. informed about it; and months before the inspection, Corollarily, it must be underscored that petitioner has

there was an unsettled controversy between TEC and the imperative duty to make a reasonable and proper

Even more revealing is the fact that TECs petitioner, brought about by the disconnection of inspection of its apparatus and equipment to ensure

meters registered 9,300 kwh and 19,200 kwh electric power and the non-payment of differential that they do not malfunction, and the due diligence to

consumption on the first and second accounts, billing. We are more disposed to accept the trial discover and repair defects therein. Failure to perform

respectively, a month prior to the inspection. On the courts conclusion that it is hard to believe that a such duties constitutes negligence.[36] By reason of

first month after the meters were corrected, TECs customer previously apprehended for tampered said negligence, public utilities run the risk of

electric consumption registered at 9,300 kwh and meters and assessed P7 million would further
forfeiting amounts originally due from their answer to the urgent need to put an end to illegal Petitioner, in the instant case, resorted to the remedy

customers.[37] activities that prejudice the economic well-being of of disconnection without prior notice. While it is true

As to the alleged tampering of the electric meter in both the companies concerned and the consuming that petitioner sent a demand letter to TEC for the

TECs NS building, suffice it to state that the public.[41] P.D. 401 granted the electric companies the payment of differential billing, it did not include any

allegation was not proven, considering that the meters right to conduct inspections of electric meters and the notice that the electric supply would be

therein were enclosed in a metal cabinet the metal seal criminal prosecution[42] of erring consumers who disconnected. In fine, petitioner abused the remedies

of which was unbroken, with petitioner having sole were found to have tampered with their electric granted to it under P.D. 401 and Revised General

access to the said meters.[38] meters. It did not expressly provide for more Order No. 1 by outrightly depriving TEC of electrical

expedient remedies such as the charging of services without first notifying it of the impending

In view of the negative finding on the alleged differential billing and immediate disconnection disconnection. Accordingly, the CA did not err in

tampering of electric meters on TECs DCIM and NS against erring consumers. Thus, electric companies affirming the RTC decision.

buildings, petitioners claim of differential billing was found a creative way of availing themselves of such

correctly denied by the trial and appellate courts. With remedies by inserting into their service contracts (or As to the damages awarded by the CA, we deem it

greater reason, therefore, could petitioner not exercise agreements for the sale of electric energy) a provision proper to modify the same. Actual damages are

the right of immediate disconnection. for differential billing with the option of compensation for an injury that will put the injured

disconnection upon non-payment by the erring party in the position where it was before the

The law in force at the time material to this consumer. The Court has recognized the validity of injury. They pertain to such injuries or losses that are

controversy was Presidential Decree (P.D.) No. such stipulations.[43] However, recourse to differential actually sustained and susceptible of

401[39] issued on March 1, 1974.[40] The decree billing with disconnection was subject to the prior measurement. Except as provided by law or by

penalized unauthorized installation of water, requirement of a 48-hour written notice of stipulation, a party is entitled to adequate

electrical or telephone connections and such acts as disconnection.[44] compensation only for such pecuniary loss as is duly

the use of tampered electrical meters. It was issued in proven. Basic is the rule that to recover actual
damages, not only must the amount of loss be capable acknowledge any culpability and liability, and absent before a disconnection of electrical supply can be

of proof; it must also be actually proven with a any tampered meter, it is absurd to make the lawful effected by a public utility, the requisites of law must

reasonable degree of certainty, premised upon occupant liable. It was petitioner who received the P1 be complied with we affirm the award of P200,000.00

competent proof or the best evidence obtainable.[45] million; thus, it alone should be held liable for the as exemplary damages. With the award of exemplary

Respondent TEC sufficiently established, and return of the amount. damages, the award of attorneys fees is likewise

petitioner in fact admitted, that the former TEC also sufficiently established its claim proper, pursuant to Article 2208[48] of the Civil

paid P1,000,000.00 and P280,813.72 under protest, for the reimbursement of the amount paid as rentals Code. It is obvious that TEC needed the services of a

the amounts representing a portion of the latters claim for the generator set it was constrained to rent by lawyer to argue its cause through three levels of the

of differential billing. With the finding that no reason of the illegal disconnection of electrical judicial hierarchy. Thus, the award of P200,000.00 is

tampering was committed and, thus, no differential service. The official receipts and purchase orders in order.[49]

billing due, the aforesaid amounts should be returned submitted by TEC as evidence sufficiently show that

by petitioner, with interest, as ordered by the Court of such rentals were indeed made. However, the amount We, however, deem it proper to delete the

Appeals and pursuant to the guidelines set forth by the of P150,000.00 per month for five months, awarded award of moral damages. TECs claim was premised

Court.[46] by the CA, is excessive. Instead, a total sum allegedly on the damage to its goodwill and

of P150,000.00, as found by the RTC, is proper. reputation.[50] As a rule, a corporation is not entitled

However, despite the appellate courts conclusion that to moral damages because, not being a natural person,

no tampering was committed, it held Ultra solidarily As to the payment of exemplary damages it cannot experience physical suffering or sentiments

liable with petitioner for P1,000,000.00, only because and attorneys fees, we find no cogent reason to disturb like wounded feelings, serious anxiety, mental

the former, as occupant of the building, promised to the same. Exemplary damages are imposed by way of anguish and moral shock. The only exception to this

settle the claims of the latter. This ruling is example or correction for the public good in addition rule is when the corporation has a reputation that is

erroneous. Ultras promise was conditioned upon the to moral, temperate, liquidated, or compensatory debased, resulting in its humiliation in the business

finding of defect or tampering of the meters. It did not damages.[47] In this case, to serve as an example that realm.[51] But in such a case, it is imperative for the
claimant to present proof to justify the award. It is

essential to prove the existence of the factual basis of

the damage and its causal relation to petitioners

acts.[52] In the present case, the records are bereft of

any evidence that the name or reputation of TEC/TPC

has been debased as a result of petitioners

acts. Besides, the trial court simply awarded moral

damages in the dispositive portion of its decision

without stating the basis thereof.

WHEREFORE, the petition

is DENIED. The Decision of the Court of Appeals in

CA-G.R. CV No. 40282 dated June 18, 1997 and its

Resolution dated December 3, 1997

are AFFIRMED with the

following MODIFICATIONS: (1) the award

of P150,000.00 per month for five months as

reimbursement for the rentals of the generator set

is REDUCED to P150,000.00; and (2) the award

of P500,000.00 as moral damages is

hereby DELETED.

SO ORDERED.
 SECOND DIVISION
HERMAN C. CRYSTAL, LAMBERTO G.R. No. 172428 affirmed the 8 June 2001 decision of the Regional states that the spouses are jointly and severally liable
C. CRYSTAL, ANN GEORGIA C.
Trial Court, Branch 5, of Cebu City.[4] with CCCC. It appears that before the original loan
SOLANTE, and DORIS C. Present:
MAGLASANG, as Heirs of could be granted, BPI-Cebu City required CCCC to
Deceased SPOUSES
RAYMUNDO QUISUMBING, J., The facts, as culled from the records, follow. put up a security.
I. CRYSTAL and DESAMPARADOS Chairperson,
C. CRYSTAL, CARPIO MORALES,
Petitioners, TINGA, On 28 March 1978, spouses Raymundo and
VEL
Desamparados Crystal obtained a P300,000.00 loan
ASCO, JR., However, CCCC had no real property to offer as
and in behalf of the Cebu Contractors Consortium Co.
B security for the loan; hence, the spouses executed a
(CCCC)R from the Bank of the Philippine Islands-
I real estate mortgage[8] over their own real property
ButuanObranch (BPI-Butuan). The loan was secured
on 22 September 1977.[9] On 3 October 1977, they
by a Nchattel mortgage on heavy equipment and
, executed another real estate mortgage over the same
machinery of CCCC. On the same date, the spouses
J lot in favor of BPI-Cebu City, to secure an additional
executed
J in favor of BPI-Butuan a Continuing
. loan of P20,000.00 of CCCC.[10]
- versus - Suretyship[5] where they bound themselves as surety
Promulgated: of CCCC in the aggregate principal sum of not CCCC failed to pay its loans to both BPI-Butuan
November 28, 2008
BANK OF THE PHILIPPINE ISLANDS, exceeding P300,000.00.Thereafter, or on 29 March and BPI-Cebu City when they became due. CCCC, as
Respondent.
1979, Raymundo Crystal executed a promissory well as the spouses, failed to pay their obligations
x--------------------------------------------------------------
--------------x note[6] for the amount of P300,000.00, also in favor of despite demands. Thus, BPI resorted to the

BPI-Butuan. foreclosure of the chattel mortgage and the real estate

DECISION mortgage. The foreclosure sale on the chattel
Sometime in August 1979, CCCC renewed a
TINGA, J.: mortgage was initially stalled with the issuance of a
previous loan, this time from BPI, Cebu City branch
restraining order against BPI.[11] However,
(BPI-Cebu City). The renewal was evidenced by a
following BPIs compliance with the necessary
Before us is a Petition for Review[1] of the
promissory note[7] dated 13 August 1979, signed by
requisites of extrajudicial foreclosure, the foreclosure
Decision[2] and Resolution[3] of the Court of Appeals
the spouses in their personal capacities and as
sale on the chattel mortgage was consummated on 28
dated 24 October 2005 and 31 March 2006,
managing partners of CCCC. The promissory note
February 1988, with the proceeds amounting
respectively, in CA G.R. CV No. 72886, which
to P240,000.00 applied to the loan from BPI-Butuan foreclosure of the real estate mortgages is illegal CCCC originally had FCDU SA No. 197 with BPI,
which had then reached P707,393.90.[12] Meanwhile, because BPI should have Dewey Boulevard branch, which was transferred to

on 7 July 1981, Insular Bank of Asia and America exhausted CCCCs properties first, stressing that they BPI-Makati as FCDU SA 76/0035, at the request

(IBAA), through its Vice-President for Legal and are mere guarantors of the renewed loans. They also of Desamparados Crystal. FCDU SA 76/0035 was

Corporate Affairs, offered to buy the lot subject of prayed that they be awarded moral and exemplary thus closed, but DesamparadosCrystal failed to

the two (2) real damages, attorneys fees, litigation expenses and cost surrender the passbook because it was lost. The

of suit. Subsequently, the spouses filed an amended transferred FCSA in BPI-Makati was the one used as

complaint,[16] additionally alleging that CCCC had security for CCCCs P450,000.00 loan from BPI-

estate mortgages and to pay directly the spouses opened and maintained a foreign currency savings Makati. CCCC was no longer allowed to withdraw

indebtedness in exchange for the release of the account (FCSA-197) with bpi, Makati branch (BPI- from FCDU SA No. 197 because it was already

mortgages. BPI rejected IBAAs offer to pay.[13] Makati), and that said FCSA was used as security closed.

for a P450,000.00 loan also extended by BPI-

BPI filed a complaint for sum of money against Makati. The P450,000.00 loan was allegedly paid,

CCCC and the spouses before and thereafter the spouses demanded the return of the

the Regional Trial Court of Butuan City (RTC Butua FCSA passbook. BPI rejected the demand; thus, the The spouses appealed the decision of the trial court to

n), seeking to recover the deficiency of the loan of spouses were unable to withdraw from the said the Court of Appeals, but their appeal was

CCCC and the spouses with BPI-Butuan. The trial account to pay for their other obligations to BPI. dismissed.[18] The spouses moved for the

court ruled in favor of BPI. Pursuant to the decision, The trial court dismissed the spouses complaint and reconsideration of the decision, but the Court of

BPI instituted extrajudicial foreclosure of the spouses ordered them to pay moral and exemplary damages Appeals also denied their motion for

mortgaged property.[14] and attorneys fees to BPI.[17] It ruled that since the reconsideration.[19] Hence, the present petition.

spouses agreed to bind themselves jointly and

On 10 April 1985, the spouses filed an severally, they are solidarily liable for the loans; Before the Court, petitioners who are the heirs of the

action for Injunction With Damages, With A Prayer hence, BPI can validly foreclose the two real estate spouses argue that the failure of the spouses to pay the

For A Restraining Order and/ or Writ of Preliminary mortgages. Moreover, being guarantors-mortgagors, BPI-Cebu City loan of P120,000.00 was due

Injunction.[15] The spouses claimed that the the spouses are not entitled to the benefit of to BPIs illegal refusal to accept payment for the loan

exhaustion. Anent the FCSA, the trial court found that unless the P300,000.00 loan from BPI-Butuan would
also be paid. Consequently, in view of BPIs unjust
refusal to accept payment of the BPI-Cebu City loan,
the loan obligation of the spouses was extinguished,
petitioners contend.
The contention has no merit. Petitioners rely
on IBAAs offer to purchase the mortgaged lot from
them and to directly pay BPI out of the proceeds
thereof to settle the loan.[20]BPIs refusal to agree to
such payment scheme cannot extinguish the spouses
loan obligation. In the first place, IBAA is not privy
to the loan agreement or the promissory note between
the spouses and BPI. Contracts, after all,
take effect only between the parties, their successors
in interest, heirs
and assigns.[21] Besides, under Art. 1236 of the Civil
Code, the creditor is not bound to accept payment or
performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a
stipulation to the contrary. We see no stipulation in
the promissory note which states that a third person
may fulfill the spouses obligation. Thus, it is clear that
the spouses alone bear responsibility for the same.
obligation so requires.[24] Thus, when the obligor
In any event, the promissory note is the controlling undertakes to be jointly and severally liable, it means
repository of the obligation of the spouses. Under the that the obligation is solidary,[25] such as in this
promissory note, the spouses defined the parameters case. By stating I/we promise to pay, jointly and
of their obligation as follows: severally, to the BANK OF THE PHILIPPINE
On or before June 29, 1980 on
demand, for value received, I/we ISLANDS, the spouses agreed to be sought out and be
promise to pay, jointly and
demanded payment from, by BPI. BPI did demand
severally, to the BANK OF THE
PHILIPPINE ISLANDS, at its payment from them, but they failed to comply with
office in the city of Cebu
Philippines, the sum of ONE their obligation, prompting BPIs valid resort to the
HUNDRED TWENTY
THOUSAND foreclosure of the chattel mortgage and the real estate
PESOS (P120,0000.00),
mortgages.
Philippine Currency, subject to
periodic installments on the
principal as follows: P30,000.00
quarterly amortization starting More importantly, the promissory note, wherein the
September 28, 1979. x x x [22]
spouses undertook to be solidarily liable for the
principal loan, partakes the nature of a suretyship and
A solidary obligation is one in which each of the
therefore is an additional security for the loan. Thus
debtors is liable for the entire obligation, and each of
we held in one case that if solidary liability was
the creditors is entitled to demand the satisfaction of
instituted to guarantee a principal obligation, the law
the whole obligation from any or all of the
deems the contract to be one of suretyship.[26] And
debtors. [23] A liability is solidary only when the
while a contract of a surety is in essence secondary
obligation expressly
only to a valid principal obligation, the
so states, when the law so provides or when the natur
suretys liability to the creditor or promisee of the
e of the
principal is said to be direct, primary, and absolute; in
other words, the surety is directly and equally bound
with the principal. The surety therefore becomes
liable for the debt or duty of another even if he
possesses no direct or personal interest over the and real estate mortgages, there is no lawful basis for We do not agree with the Court of Appeals. A
obligations nor does he receive any award of damages in favor of the spouses. statement similar to that made by the Court

benefit therefrom.[27] in Manero can be found in the case of Mambulao

Lumber Co. v. PNB, et al.,[36] thus:

Petitioners contend that the Court of Appeals erred in

not granting their counterclaims, considering that they

suffered moral damages in view of the unjust refusal

x x x Obviously, an artificial
of BPI to accept the payment scheme proposed by Neither is BPI entitled to moral damages. A juridical person like herein appellant
corporation cannot
IBAA and the allegedly unjust and illegal foreclosure person is generally not entitled to moral damages experience physical sufferings,
mental anguish, fright, serious
of the real estate mortgages on their because, unlike a natural person, it cannot experience anxiety, wounded feelings, moral
shock or social humiliation which
property.[28] Conversely, they argue that the Court of physical suffering or such sentiments as wounded
are basis of moral damages. A
Appeals erred in awarding moral damages to BPI, feelings, serious anxiety, mental anguish or moral corporation may have good
reputation which, if besmirched
which is a corporation, as well as exemplary damages, shock.[32] The Court of Appeals found BPI as being may also be a ground for the
award of moral
attorneys fees and expenses of litigation.[29] famous and having gained its familiarity and respect damages. x x x (Emphasis
not only in the Philippines but also in the whole world supplied)

We do not agree. Moral damages are meant to because of its good will and good reputation must

compensate the claimant for any physical suffering, protect and defend the same against any unwarranted Nevertheless, in the more recent cases of ABS-CBN

mental anguish, fright, serious anxiety, besmirched suit such as the case at bench.[33] In holding that BPI Corp. v. Court of Appeals, et al.,[37] and Filipinas

reputation, wounded feelings, moral shock, social is entitled to moral damages, the Court of Broadcasting Network, Inc. v. Ago Medical and

humiliation and similar injuries unjustly Appeals relied on the case of People v. Educational Center-Bicol Christian College of

caused.[30] Such damages, to be recoverable, must be Manero,[34] wherein the Court ruled that [i]t is only Medicine (AMEC-BCCM),[38] the Court held that the

the proximate result of a wrongful act or omission the when a juridical person has a good reputation that is statements in Manero and Mambulao were

factual basis for which is satisfactorily established by debased, resulting in social humiliation, that moral mere obiter dicta, implying that the award of moral

the aggrieved party.[31] There being no wrongful or damages may be awarded.[35] damages to corporations is not a hard and fast

unjust act on the part of BPI in demanding payment rule. Indeed, while the Court may allow the grant of

from them and in seeking the foreclosure of the chattel moral damages to corporations, it is not automatically
granted; there must still be proof of the existence of on account of the single suit alone. Hence, the award damages to Bank of the Philippine Islands
the factual basis of the damage and its causal relation of moral damages should be deleted. is DELETED.

to the defendants acts. This is so because moral

damages, though incapable of pecuniary estimation, The awards of exemplary damages and attorneys fees, Costs against the petitioners.

are in the category of an award designed to however, are proper. Exemplary damages, on the

compensate the claimant for actual injury suffered other hand, are imposed by way of example or SO ORDERED.

and not to impose a penalty on the wrongdoer.[39] correction for the public good, when the party to a

contract acts in a wanton, fraudulent, oppressive or

The spouses complaint against BPI proved to be malevolent manner, while attorneys fees are allowed

unfounded, but it does not automatically entitle BPI to when exemplary damages are awarded and when the

moral damages. Although the institution of a clearly party to a suit is compelled to incur expenses to

unfounded civil suit can at times be a legal protect his interest.[41] The spouses instituted their

complaint against BPI notwithstanding the fact that

they were the ones who failed to pay their obligations.

Consequently, BPI was forced to litigate and defend

justification for an award of attorney's fees, such its interest. For these reasons, BPI is entitled to the

filing, however, has almost invariably been held not awards of exemplary damages and attorneys fees.

to be a ground for an award of moral damages. The

rationale for the rule is that the law could not have

meant to impose a penalty on the right to litigate.

Otherwise, moral damages must every time be WHEREFORE, the petition is DENIED. The

awarded in favor of the prevailing defendant against Decision and Resolution of the Court of Appeals

an unsuccessful plaintiff.[40] BPI may have been dated 24 October 2005 and 31 March 2006,

inconvenienced by the suit, but we do not see how it respectively, are hereby AFFIRMED, with the

could have possibly suffered besmirched reputation MODIFICATION that the award of moral
 epublic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 171182 August 23, 2012
UNIVERSITY OF THE PHILIPPINES, JOSE V.
ABUEVA, RAUL P. DE GUZMAN, RUBEN P.
ASPIRAS, EMMANUEL P. BELLO,
WILFREDO P. DAVID, CASIANO S. ABRIGO,
and JOSEFINA R. LICUANAN,Petitioners,
vs.
HON. AGUSTIN S. DIZON, his capacity as
Presiding Judge of the Regional Trial Court
of Quezon City, Branch 80, STERN
BUILDERS, INC., and SERVILLANO DELA
CRUZ, Respondents.
DECISION
BERSAMIN, J.:
Trial judges should not immediately issue writs
of execution or garnishment against the
Government or any of its subdivisions, agencies
and instrumentalities to enforce money
judgments.1 They should bear in mind that the
primary jurisdiction to examine, audit and settle
all claims of any sort due from the Government
or any of its subdivisions, agencies and
instrumentalities pertains to the Commission on
Audit (COA) pursuant to Presidential Decree
No. 1445 (Government Auditing Code of the
Philippines).
The Case
On appeal by the University of the Philippines
and its then incumbent officials (collectively, the
UP) is the decision promulgated on September
16, 2005,2 whereby the Court of Appeals (CA)
upheld the order of the Regional Trial Court
(RTC), Branch 80, in Quezon City that directed
the garnishment of public funds amounting to ₱
16,370,191.74 belonging to the UP to satisfy the
writ of execution issued to enforce the already
final and executory judgment against the UP.
Antecedents
On August 30, 1990, the UP, through its then
President Jose V. Abueva, entered into a
General Construction Agreement with
respondent Stern Builders Corporation (Stern
Builders), represented by its President and
General Manager Servillano dela Cruz, for the
construction of the extension building and the
renovation of the College of Arts and Sciences
Building in the campus of the University of the
Philippines in Los Baños (UPLB).3
In the course of the implementation of the
contract, Stern Builders submitted three
progress billings corresponding to the work
accomplished, but the UP paid only two of the
billings. The third billing worth ₱ 273,729.47
was not paid due to its disallowance by the
Commission on Audit (COA). Despite the lifting
of the disallowance, the UP failed to pay the
billing, prompting Stern Builders and dela Cruz
to sue the UP and its co-respondent officials to
collect the unpaid billing and to recover various
damages. The suit, entitled Stern Builders
Corporation and Servillano R. Dela Cruz v.
University of the Philippines Systems, Jose V.
Abueva, Raul P. de Guzman, Ruben P. Aspiras,
Emmanuel P. Bello, Wilfredo P. David, Casiano
S. Abrigo, and Josefina R. Licuanan, was
docketed as Civil Case No. Q-93-14971 of the
Regional Trial Court in Quezon City (RTC).4
After trial, on November 28, 2001, the RTC
rendered its decision in favor of the
plaintiffs,5 viz:
Wherefore, in the light of the foregoing,
judgment is hereby rendered in favor of the
plaintiff and against the defendants ordering the
latter to pay plaintiff, jointly and severally, the
following, to wit:
1. ₱ 503,462.74 amount of the third
billing, additional accomplished work
and retention money
2. ₱ 5,716,729.00 in actual damages
3. ₱ 10,000,000.00 in moral damages
4. ₱ 150,000.00 and ₱ 1,500.00 per
appearance as attorney’s fees; and
5. Costs of suit.
SO ORDERED.
Following the RTC’s denial of its motion for
reconsideration on May 7, 2002,6 the UP filed a
notice of appeal on June 3, 2002.7 Stern
Builders and dela Cruz opposed the notice of
appeal on the ground of its filing being belated,
and moved for the execution of the decision.
The UP countered that the notice of appeal was
filed within the reglementary period because the
UP’s Office of Legal Affairs (OLS) in Diliman,
Quezon City received the order of denial only
on May 31, 2002. On September 26, 2002, the
RTC denied due course to the notice of appeal
for having been filed out of time and granted the
private respondents’ motion for execution.8
The RTC issued the writ of execution on
October 4, 2002,9 and the sheriff of the RTC
served the writ of execution and notice of
demand upon the UP, through its counsel, on
October 9, 2002.10 The UP filed an urgent
motion to reconsider the order dated September
26, 2002, to quash the writ of execution dated
October 4, 2002, and to restrain the
proceedings.11 However, the RTC denied the
urgent motion on April 1, 2003.12
On June 24, 2003, the UP assailed the denial of
due course to its appeal through a petition
for certiorari in the Court of Appeals (CA),
docketed as CA-G.R. No. 77395.13
On February 24, 2004, the CA dismissed the
petition for certiorari upon finding that the UP’s
notice of appeal had been filed late,14 stating:
Records clearly show that petitioners received a
copy of the Decision dated November 28, 2001
and January 7, 2002, thus, they had until
January 22, 2002 within which to file their
appeal. On January 16, 2002 or after the lapse
of nine (9) days, petitioners through their
counsel Atty. Nolasco filed a Motion for
Reconsideration of the aforesaid decision,
hence, pursuant to the rules, petitioners still had
six (6) remaining days to file their appeal. As
admitted by the petitioners in their petition
(Rollo, p. 25), Atty. Nolasco received a copy of
the Order denying their motion for
reconsideration on May 17, 2002, thus,
petitioners still has until May 23, 2002 (the
remaining six (6) days) within which to file their
appeal. Obviously, petitioners were not able to
file their Notice of Appeal on May 23, 2002 as it
was only filed on June 3, 2002.
In view of the said circumstances, We are of the
belief and so holds that the Notice of Appeal
filed by the petitioners was really filed out of
time, the same having been filed seventeen (17)
days late of the reglementary period. By reason
of which, the decision dated November 28,
2001 had already become final and executory.
"Settled is the rule that the perfection of an
appeal in the manner and within the period
permitted by law is not only mandatory but
jurisdictional, and failure to perfect that appeal
renders the challenged judgment final and
executory. This is not an empty procedural rule
but is grounded on fundamental considerations
of public policy and sound practice." (Ram’s
Studio and Photographic Equipment, Inc. vs.
Court of Appeals, 346 SCRA 691, 696). Indeed,
Atty. Nolasco received the order of denial of the
Motion for Reconsideration on May 17, 2002 but
filed a Notice of Appeal only on June 3, 3003.
As such, the decision of the lower court ipso
facto became final when no appeal was
perfected after the lapse of the reglementary
period. This procedural caveat cannot be trifled
with, not even by the High Court.15
The UP sought a reconsideration, but the CA
denied the UP’s motion for reconsideration on
April 19, 2004.16
On May 11, 2004, the UP appealed to the Court
by petition for review on certiorari (G.R. No.
163501).
On June 23, 2004, the Court denied the petition
for review.17 The UP moved for the
reconsideration of the denial of its petition for
review on August 29, 2004,18 but the Court
denied the motion on October 6, 2004.19 The
denial became final and executory on
November 12, 2004.20
In the meanwhile that the UP was exhausting
the available remedies to overturn the denial of
due course to the appeal and the issuance of
the writ of execution, Stern Builders and dela
Cruz filed in the RTC their motions for execution
despite their previous motion having already
been granted and despite the writ of execution
having already issued. On June 11, 2003, the
RTC granted another motion for execution filed
on May 9, 2003 (although the RTC had already
issued the writ of execution on October 4,
2002).21
On June 23, 2003 and July 25, 2003,
respectively, the sheriff served notices of
garnishment on the UP’s depository banks,
namely: Land Bank of the Philippines (Buendia
Branch) and the Development Bank of the
Philippines (DBP), Commonwealth
Branch.22 The UP assailed the garnishment
through an urgent motion to quash the notices
of garnishment;23 and a motion to quash the writ
of execution dated May 9, 2003.24
On their part, Stern Builders and dela Cruz filed
their ex parte motion for issuance of a release
order.25
On October 14, 2003, the RTC denied the UP’s
urgent motion to quash, and granted Stern
Builders and dela Cruz’s ex parte motion for
issuance of a release order.26
The UP moved for the reconsideration of the
order of October 14, 2003, but the RTC denied
the motion on November 7, 2003.27
On January 12, 2004, Stern Builders and dela
Cruz again sought the release of the garnished
funds.28 Despite the UP’s opposition,29 the RTC
granted the motion to release the garnished
funds on March 16, 2004.30 On April 20, 2004,
however, the RTC held in abeyance the
enforcement of the writs of execution issued on
October 4, 2002 and June 3, 2003 and all the
ensuing notices of garnishment, citing Section
4, Rule 52, Rules of Court, which provided that
the pendency of a timely motion for
reconsideration stayed the execution of the
judgment.31
On December 21, 2004, the RTC, through
respondent Judge Agustin S. Dizon, authorized
the release of the garnished funds of the
UP,32 to wit:
WHEREFORE, premises considered, there
being no more legal impediment for the release
of the garnished amount in satisfaction of the
judgment award in the instant case, let the
amount garnished be immediately released by
the Development Bank of the Philippines,
Commonwealth Branch, Quezon City in favor of
the plaintiff.
SO ORDERED.
The UP was served on January 3, 2005 with the
order of December 21, 2004 directing DBP to
release the garnished funds.33
On January 6, 2005, Stern Builders and dela
Cruz moved to cite DBP in direct contempt of
court for its non-compliance with the order of
release.34
Thereupon, on January 10, 2005, the UP
brought a petition for certiorari in the CA to
challenge the jurisdiction of the RTC in issuing
the order of December 21, 2004 (CA-G.R. CV
No. 88125).35 Aside from raising the denial of
due process, the UP averred that the RTC
committed grave abuse of discretion amounting
to lack or excess of jurisdiction in ruling that
there was no longer any legal impediment to the
release of the garnished funds. The UP argued
that government funds and properties could not
be seized by virtue of writs of execution or
garnishment, as held in Department of
Agriculture v. National Labor Relations
Commission,36 and citing Section 84 of
Presidential Decree No. 1445 to the effect that
"revenue funds shall not be paid out of any
public treasury or depository except in
pursuance of an appropriation law or other
specific statutory authority;" and that the order
of garnishment clashed with the ruling in
University of the Philippines Board of Regents
v. Ligot-Telan37 to the effect that the funds
belonging to the UP were public funds.
On January 19, 2005, the CA issued a
temporary restraining order (TRO) upon
application by the UP.38
On March 22, 2005, Stern Builders and dela
Cruz filed in the RTC their amended motion for
sheriff’s assistance to implement the release
order dated December 21, 2004, stating that the
60-day period of the TRO of the CA had already
lapsed.39 The UP opposed the amended motion
and countered that the implementation of the
release order be suspended.40
On May 3, 2005, the RTC granted the amended
motion for sheriff’s assistance and directed the
sheriff to proceed to the DBP to receive the
check in satisfaction of the judgment.41
The UP sought the reconsideration of the order
of May 3, 2005.42
On May 16, 2005, DBP filed a motion to consign
the check representing the judgment award and
to dismiss the motion to cite its officials in
contempt of court.43
On May 23, 2005, the UP presented a motion to
withhold the release of the payment of the
judgment award.44
On July 8, 2005, the RTC resolved all the
pending matters,45 noting that the DBP had
already delivered to the sheriff Manager’s
Check No. 811941 for ₱ 16,370,191.74
representing the garnished funds payable to the
order of Stern Builders and dela Cruz as its
compliance with the RTC’s order dated
December 21, 2004.46 However, the RTC
directed in the same order that Stern Builders
and dela Cruz should not encash the check or
withdraw its amount pending the final resolution
of the UP’s petition for certiorari, to wit:47
To enable the money represented in the check
in question (No. 00008119411) to earn interest
during the pendency of the defendant University
of the Philippines application for a writ of
injunction with the Court of Appeals the same
may now be deposited by the plaintiff at the
garnishee Bank (Development Bank of the
Philippines), the disposition of the amount
represented therein being subject to the final
outcome of the case of the University of the
Philippines et al., vs. Hon. Agustin S. Dizon et
al., (CA G.R. 88125) before the Court of
Appeals.
Let it be stated herein that the plaintiff is not
authorized to encash and withdraw the amount
represented in the check in question and enjoy
the same in the fashion of an owner during the
pendency of the case between the parties
before the Court of Appeals which may or may
not be resolved in plaintiff’s favor.
With the end in view of seeing to it that the
check in question is deposited by the plaintiff at
the Development Bank of the Philippines
(garnishee bank), Branch Sheriff Herlan
Velasco is directed to accompany and/or escort
the plaintiff in making the deposit of the check in
question.
SO ORDERED.
On September 16, 2005, the CA promulgated
its assailed decision dismissing the UP’s
petition for certiorari, ruling that the UP had
been given ample opportunity to contest the
motion to direct the DBP to deposit the check in
the name of Stern Builders and dela Cruz; and
that the garnished funds could be the proper
subject of garnishment because they had been
already earmarked for the project, with the UP
holding the funds only in a fiduciary
capacity,48 viz:
Petitioners next argue that the UP funds may
not be seized for execution or garnishment to
satisfy the judgment award. Citing Department
of Agriculture vs. NLRC, University of the
Philippines Board of Regents vs. Hon. Ligot-
Telan, petitioners contend that UP deposits at
Land Bank and the Development Bank of the
Philippines, being government funds, may not
be released absent an appropriations bill from
Congress.
The argument is specious. UP entered into a
contract with private respondents for the
expansion and renovation of the Arts and
Sciences Building of its campus in Los Baños,
Laguna. Decidedly, there was already an
appropriations earmarked for the said project.
The said funds are retained by UP, in a fiduciary
capacity, pending completion of the construction
project.
We agree with the trial Court [sic]
observation on this score:
"4. Executive Order No. 109 (Directing
all National Government Agencies to
Revert Certain Accounts Payable to
the Cumulative Result of Operations of
the National Government and for Other
Purposes) Section 9. Reversion of
Accounts Payable, provides that, all
1995 and prior years documented
accounts payable and all
undocumented accounts regardless of
the year they were incurred shall be
reverted to the Cumulative Result of
Operations of the National
Government (CROU). This shall apply
to accounts payable of all funds,
except fiduciary funds, as long as the
purpose for which the funds were
created have not been accomplished
and accounts payable under foreign
assisted projects for the duration of the
said project. In this regard, the
Department of Budget and
Management issued Joint-Circular No.
99-6 4.0 (4.3) Procedural Guidelines
which provides that all accounts
payable that reverted to the CROU
may be considered for payment upon
determination thru administrative
process, of the existence, validity and
legality of the claim. Thus, the
allegation of the defendants that
considering no appropriation for the
payment of any amount awarded to
plaintiffs appellee the funds of
defendant-appellants may not be
seized pursuant to a writ of execution
issued by the regular court is
misplaced. Surely when the
defendants and the plaintiff entered
into the General Construction of
Agreement there is an amount already
allocated by the latter for the said
project which is no longer subject of
future appropriation."49
After the CA denied their motion for
reconsideration on December 23, 2005, the
petitioners appealed by petition for review.
Matters Arising During the Pendency of the
Petition
On January 30, 2006, Judge Dizon of the RTC
(Branch 80) denied Stern Builders and dela
Cruz’s motion to withdraw the deposit, in
consideration of the UP’s intention to appeal to
the CA,50 stating:
Since it appears that the defendants are
intending to file a petition for review of the Court
of Appeals resolution in CA-G.R. No. 88125
within the reglementary period of fifteen (15)
days from receipt of resolution, the Court
agrees with the defendants stand that the
granting of plaintiffs’ subject motion is
premature.
Let it be stated that what the Court meant by its
Order dated July 8, 2005 which states in part
that the "disposition of the amount represented
therein being subject to the final outcome of the
case of the University of the Philippines, et. al.,
vs. Hon. Agustin S. Dizon et al., (CA G.R. No.
88125 before the Court of Appeals) is that the
judgment or resolution of said court has to be
final and executory, for if the same will still be
elevated to the Supreme Court, it will not attain
finality yet until the highest court has rendered
its own final judgment or resolution.51
However, on January 22, 2007, the UP filed
an Urgent Application for A Temporary
Restraining Order and/or A Writ of Preliminary
Injunction,52 averring that on January 3, 2007,
Judge Maria Theresa dela Torre-Yadao (who
had meanwhile replaced Judge Dizon upon the
latter’s appointment to the CA) had issued
another order allowing Stern Builders and dela
Cruz to withdraw the deposit,53 to wit:
It bears stressing that defendants’ liability for
the payment of the judgment obligation has
become indubitable due to the final and
executory nature of the Decision dated
November 28, 2001. Insofar as the payment of
the [sic] judgment obligation is concerned, the
Court believes that there is nothing more the
defendant can do to escape liability. It is
observed that there is nothing more the
defendant can do to escape liability. It is
observed that defendant U.P. System had
already exhausted all its legal remedies to
overturn, set aside or modify the decision (dated
November 28, 2001( rendered against it. The
way the Court sees it, defendant U.P. System’s
petition before the Supreme Court concerns
only with the manner by which said judgment
award should be satisfied. It has nothing to do
with the legality or propriety thereof, although it
prays for the deletion of [sic] reduction of the
award of moral damages.
It must be emphasized that this Court’s finding,
i.e., that there was sufficient appropriation
earmarked for the project, was upheld by the
Court of Appeals in its decision dated
September 16, 2005. Being a finding of fact, the
Supreme Court will, ordinarily, not disturb the
same was said Court is not a trier of fact. Such
being the case, defendants’ arguments that
there was no sufficient appropriation for the
payment of the judgment obligation must fail.
While it is true that the former Presiding Judge
of this Court in its Order dated January 30, 2006
had stated that:
Let it be stated that what the Court meant by its
Order dated July 8, 2005 which states in part
that the "disposition of the amount represented
therein being subject to the final outcome of the
case of the University of the Philippines, et. al.,
vs. Hon. Agustin S. Dizon et al., (CA G.R. No.
88125 before the Court of Appeals) is that the
judgment or resolution of said court has to be
final and executory, for if the same will still be
elevated to the Supreme Court, it will not attain
finality yet until the highest court has rendered
its own final judgment or resolution.
it should be noted that neither the Court of
Appeals nor the Supreme Court issued a
preliminary injunction enjoining the release or
withdrawal of the garnished amount. In fact, in
its present petition for review before the
Supreme Court, U.P. System has not prayed for
the issuance of a writ of preliminary injunction.
Thus, the Court doubts whether such writ is
forthcoming.
The Court honestly believes that if defendants’
petition assailing the Order of this Court dated
December 31, 2004 granting the motion for the
release of the garnished amount was
meritorious, the Court of Appeals would have
issued a writ of injunction enjoining the same.
Instead, said appellate court not only refused to
issue a wit of preliminary injunction prayed for
by U.P. System but denied the petition, as
well.54
The UP contended that Judge Yadao thereby
effectively reversed the January 30, 2006 order
of Judge Dizon disallowing the withdrawal of the
garnished amount until after the decision in the
case would have become final and executory.
Although the Court issued a TRO on January
24, 2007 to enjoin Judge Yadao and all persons
acting pursuant to her authority from enforcing
her order of January 3, 2007,55 it appears that
on January 16, 2007, or prior to the issuance of
the TRO, she had already directed the DBP to
forthwith release the garnished amount to Stern
Builders and dela Cruz; 56 and that DBP had
forthwith complied with the order on January 17,
2007 upon the sheriff’s service of the order of
Judge Yadao.57
These intervening developments impelled the
UP to file in this Court a supplemental petition
on January 26, 2007,58alleging that the RTC
(Judge Yadao) gravely erred in ordering the
immediate release of the garnished amount
despite the pendency of the petition for review
in this Court.
The UP filed a second supplemental
petition59 after the RTC (Judge Yadao) denied
the UP’s motion for the redeposit of the
withdrawn amount on April 10, 2007,60 to wit:
This resolves defendant U.P. System’s Urgent
Motion to Redeposit Judgment Award praying
that plaintiffs be directed to redeposit the
judgment award to DBP pursuant to the
Temporary Restraining Order issued by the
Supreme Court. Plaintiffs opposed the motion
and countered that the Temporary Restraining
Order issued by the Supreme Court has
become moot and academic considering that
the act sought to be restrained by it has already
been performed. They also alleged that the
redeposit of the judgment award was no longer
feasible as they have already spent the same.
It bears stressing, if only to set the record
straight, that this Court did not – in its Order
dated January 3, 2007 (the implementation of
which was restrained by the Supreme Court in
its Resolution dated January 24, 2002) – direct
that that garnished amount "be deposited with
the garnishee bank (Development Bank of the
Philippines)". In the first place, there was no
need to order DBP to make such deposit, as the
garnished amount was already deposited in the
account of plaintiffs with the DBP as early as
May 13, 2005. What the Court granted in its
Order dated January 3, 2007 was plaintiff’s
motion to allow the release of said deposit. It
must be recalled that the Court found plaintiff’s
motion meritorious and, at that time, there was
no restraining order or preliminary injunction
from either the Court of Appeals or the Supreme
Court which could have enjoined the release of
plaintiffs’ deposit. The Court also took into
account the following factors:
 a) the Decision in this case had long
been final and executory after it was
rendered on November 28, 2001;
b) the propriety of the dismissal of U.P.
System’s appeal was upheld by the
Supreme Court;
c) a writ of execution had been issued;
d) defendant U.P. System’s deposit
with DBP was garnished pursuant to a
lawful writ of execution issued by the
Court; and
e) the garnished amount had already
been turned over to the plaintiffs and
deposited in their account with DBP.
The garnished amount, as discussed in the
Order dated January 16, 2007, was already
owned by the plaintiffs, having been delivered to
them by the Deputy Sheriff of this Court
pursuant to par. (c), Section 9, Rule 39 of the
1997 Rules of Civil Procedure. Moreover, the
judgment obligation has already been fully
satisfied as per Report of the Deputy Sheriff.
Anent the Temporary Restraining Order issued
by the Supreme Court, the same has become
functus oficio, having been issued after the
garnished amount had been released to the
plaintiffs. The judgment debt was released to
the plaintiffs on January 17, 2007, while the
Temporary Restraining Order issued by the
Supreme Court was received by this Court on
February 2, 2007. At the time of the issuance of
the Restraining Order, the act sought to be
restrained had already been done, thereby
rendering the said Order ineffectual.
After a careful and thorough study of the
arguments advanced by the parties, the Court is
of the considered opinion that there is no legal
basis to grant defendant U.P. System’s motion
to redeposit the judgment amount. Granting
said motion is not only contrary to law, but it will
also render this Court’s final executory
judgment nugatory. Litigation must end and
terminate sometime and somewhere, and it is
essential to an effective administration of justice
that once a judgment has become final the
issue or cause involved therein should be laid to
rest. This doctrine of finality of judgment is
grounded on fundamental considerations of
public policy and sound practice. In fact, nothing
is more settled in law than that once a judgment
attains finality it thereby becomes immutable
and unalterable. It may no longer be modified in
any respect, even if the modification is meant to
correct what is perceived to be an erroneous
conclusion of fact or law, and regardless of
whether the modification is attempted to be
made by the court rendering it or by the highest
court of the land.
WHEREFORE, premises considered, finding
defendant U.P. System’s Urgent Motion to
Redeposit Judgment Award devoid of merit, the
same is hereby DENIED.
SO ORDERED.
Issues
The UP now submits that:
I ITS ORDER DATED 16 JANUARY 2007 ON
THE COURT OF APPEALS COMMITTED
GRAVE ERROR IN DISMISSING THE
PETITION, ALLOWING IN EFFECT THE
GARNISHMENT OF UP FUNDS, WHEN IT
RULED THAT FUNDS HAVE ALREADY BEEN
EARMARKED FOR THE CONSTRUCTION
PROJECT; AND THUS, THERE IS NO NEED
FOR FURTHER APPROPRIATIONS.
II
THE COURT OF APPEALS COMMITTED
GRAVE ERROR IN ALLOWING
GARNISHMENT OF A STATE UNIVERSITY’S
FUNDS IN VIOLATION OF ARTICLE XIV,
SECTION 5(5) OF THE CONSTITUTION.
III
IN THE ALTERNATIVE, THE UNIVERSITY
INVOKES EQUITY AND THE REVIEW
POWERS OF THIS HONORABLE COURT TO
MODIFY, IF NOT TOTALLY DELETE THE
AWARD OF ₱ 10 MILLION AS MORAL
DAMAGES TO RESPONDENTS.
IV
THE RTC-BRANCH 80 COMMITTED GRAVE
ERROR IN ORDERING THE IMMEDIATE
RELEASE OF THE JUDGMENT AWARD IN
ITS ORDER DATED 3 JANUARY 2007 ON
THE GROUND OF EQUITY AND JUDICIAL
COURTESY.
V
THE RTC-BRANCH 80 COMMITTED GRAVE
ERROR IN ORDERING THE IMMEDIATE
RELEASE OF THE JUDGMENT AWARD IN
THE GROUND THAT PETITIONER
UNIVERSITY STILL HAS A PENDING MOTION
FOR RECONSIDERATION OF THE ORDER
DATED 3 JANUARY 2007.
VI
THE RTC-BRANCH 80 COMMITTED GRAVE
ERROR IN NOT ORDERING THE REDEPOSIT
OF THE GARNISHED AMOUNT TO THE DBP
IN VIOLATION OF THE CLEAR LANGUAGE
OF THE SUPREME COURT RESOLUTION
DATED 24 JANUARY 2007.
The UP argues that the amount earmarked for
the construction project had been purposely set
aside only for the aborted project and did not
include incidental matters like the awards of
actual damages, moral damages and attorney’s
fees. In support of its argument, the UP cited
Article 12.2 of the General Construction
Agreement, which stipulated that no deductions
would be allowed for the payment of claims,
damages, losses and expenses, including
attorney’s fees, in case of any litigation arising
out of the performance of the work. The UP
insists that the CA decision was inconsistent
with the rulings in Commissioner of Public
Highways v. San Diego61 and Department of
Agriculture v. NLRC62 to the effect that
government funds and properties could not be
seized under writs of execution or garnishment
to satisfy judgment awards.
Furthermore, the UP contends that the CA
contravened Section 5, Article XIV of the
Constitution by allowing the garnishment of UP
funds, because the garnishment resulted in a
substantial reduction of the UP’s limited budget
allocated for the remuneration, job satisfaction
and fulfillment of the best available teachers;
that Judge Yadao should have exhibited judicial
courtesy towards the Court due to the pendency
of the UP’s petition for review; and that she
should have also desisted from declaring that
the TRO issued by this Court had become
functus officio.
Lastly, the UP states that the awards of actual
damages of ₱ 5,716,729.00 and moral
damages of ₱ 10 million should be reduced, if
not entirely deleted, due to its being
unconscionable, inequitable and detrimental to
public service.
In contrast, Stern Builders and dela Cruz aver
that the petition for review was fatally defective
for its failure to mention the other cases upon
the same issues pending between the parties
(i.e., CA-G.R. No. 77395 and G.R No. 163501);
that the UP was evidently resorting to forum
shopping, and to delaying the satisfaction of the
final judgment by the filing of its petition for
review; that the ruling in Commissioner of Public
Works v. San Diego had no application because
there was an appropriation for the project; that
the UP retained the funds allotted for the project
only in a fiduciary capacity; that the contract
price had been meanwhile adjusted to ₱
22,338,553.25, an amount already more than
sufficient to cover the judgment award; that the
UP’s prayer to reduce or delete the award of
damages had no factual basis, because they
had been gravely wronged, had been deprived
of their source of income, and had suffered
untold miseries, discomfort, humiliation and
sleepless years; that dela Cruz had even been
constrained to sell his house, his equipment and
the implements of his trade, and together with
his family had been forced to live miserably
because of the wrongful actuations of the UP;
and that the RTC correctly declared the Court’s
TRO to be already functus officio by reason of
the withdrawal of the garnished amount from
the DBP.
The decisive issues to be considered and
passed upon are, therefore:
(a) whether the funds of the UP were the proper
subject of garnishment in order to satisfy the
judgment award; and (b) whether the UP’s
prayer for the deletion of the awards of actual
damages of ₱ 5,716,729.00, moral damages of
₱ 10,000,000.00 and attorney’s fees of ₱
150,000.00 plus ₱ 1,500.00 per appearance
could be granted despite the finality of the
judgment of the RTC.
Ruling
The petition for review is meritorious.
I.
UP’s funds, being government funds,
are not subject to garnishment
The UP was founded on June 18, 1908 through
Act 1870 to provide advanced instruction in
literature, philosophy, the sciences, and arts,
and to give professional and technical training
to deserving students.63 Despite its
establishment as a body corporate,64 the UP
remains to be a "chartered
institution"65 performing a legitimate government
function. It is an institution of higher learning,
not a corporation established for profit and
declaring any dividends.66 In enacting Republic
Act No. 9500 (The University of the Philippines
Charter of 2008), Congress has declared the
UP as the national university67 "dedicated to the
search for truth and knowledge as well as the
development of future leaders."68
Irrefragably, the UP is a government
instrumentality,69 performing the State’s
constitutional mandate of promoting quality and
accessible education.70 As a government
instrumentality, the UP administers special
funds sourced from the fees and income
enumerated under Act No. 1870 and Section 1
of Executive Order No. 714,71 and from the
yearly appropriations, to achieve the purposes
laid down by Section 2 of Act 1870, as
expanded in Republic Act No. 9500.72 All the
funds going into the possession of the UP,
including any interest accruing from the deposit
of such funds in any banking institution,
constitute a "special trust fund," the
disbursement of which should always be
aligned with the UP’s mission and
purpose,73 and should always be subject to
auditing by the COA.74
Presidential Decree No. 1445 defines a "trust
fund" as a fund that officially comes in the
possession of an agency of the government or
of a public officer as trustee, agent or
administrator, or that is received for the
fulfillment of some obligation.75 A trust fund may
be utilized only for the "specific purpose for
which the trust was created or the funds
received."76
The funds of the UP are government funds that
are public in character. They include the income
accruing from the use of real property ceded to
the UP that may be spent only for the
attainment of its institutional
objectives.77 Hence, the funds subject of this
action could not be validly made the subject of
the RTC’s writ of execution or garnishment. The
adverse judgment rendered against the UP in a
suit to which it had impliedly consented was not
immediately enforceable by execution against
the UP,78 because suability of the State did not
necessarily mean its liability.79
A marked distinction exists between suability of
the State and its liability. As the Court succinctly
stated in Municipality of San Fernando, La
Union v. Firme:80
A distinction should first be made between
suability and liability. "Suability depends on the
consent of the state to be sued, liability on the
applicable law and the established facts. The
circumstance that a state is suable does not
necessarily mean that it is liable; on the other
hand, it can never be held liable if it does not
first consent to be sued. Liability is not
conceded by the mere fact that the state has
allowed itself to be sued. When the state does
waive its sovereign immunity, it is only giving
the plaintiff the chance to prove, if it can, that
the defendant is liable.
Also, in Republic v. Villasor,81 where the
issuance of an alias writ of execution directed
against the funds of the Armed Forces of the
Philippines to satisfy a final and executory
judgment was nullified, the Court said:
xxx The universal rule that where the State
gives its consent to be sued by private parties
either by general or special law, it may limit
claimant’s action "only up to the completion of
proceedings anterior to the stage of execution"
and that the power of the Courts ends when the
judgment is rendered, since government funds
and properties may not be seized under writs of
execution or garnishment to satisfy such
judgments, is based on obvious considerations
of public policy. Disbursements of public funds
must be covered by the corresponding
appropriation as required by law. The functions
and public services rendered by the State
cannot be allowed to be paralyzed or disrupted
by the diversion of public funds from their
legitimate and specific objects, as appropriated
by law.
The UP correctly submits here that the
garnishment of its funds to satisfy the judgment
awards of actual and moral damages (including
attorney’s fees) was not validly made if there
was no special appropriation by Congress to
cover the liability. It was, therefore, legally
unwarranted for the CA to agree with the RTC’s
holding in the order issued on April 1, 2003 that
no appropriation by Congress to allocate and
set aside the payment of the judgment awards
was necessary because "there (were) already
an appropriations (sic) earmarked for the said
project."82 The CA and the RTC thereby
unjustifiably ignored the legal restriction
imposed on the trust funds of the Government
and its agencies and instrumentalities to be
used exclusively to fulfill the purposes for which
the trusts were created or for which the funds
were received except upon express
authorization by Congress or by the head of a
government agency in control of the funds, and
subject to pertinent budgetary laws, rules and
regulations.83
Indeed, an appropriation by Congress was
required before the judgment that rendered the
UP liable for moral and actual damages
(including attorney’s fees) would be satisfied
considering that such monetary liabilities were
not covered by the "appropriations earmarked
for the said project." The Constitution strictly
mandated that "(n)o money shall be paid out of
the Treasury except in pursuance of an
appropriation made by law."84
II
COA must adjudicate private respondents’
claim
before execution should proceed
The execution of the monetary judgment
against the UP was within the primary
jurisdiction of the COA. This was expressly
provided in Section 26 of Presidential Decree
No. 1445, to wit:
Section 26. General jurisdiction. - The authority
and powers of the Commission shall extend to
and comprehend all matters relating to auditing
procedures, systems and controls, the keeping
of the general accounts of the Government, the
preservation of vouchers pertaining thereto for a
period of ten years, the examination and
inspection of the books, records, and papers
relating to those accounts; and the audit and
settlement of the accounts of all persons
respecting funds or property received or held by
them in an accountable capacity, as well as the
examination, audit, and settlement of all debts
and claims of any sort due from or owing to the
Government or any of its subdivisions, agencies
and instrumentalities. The said jurisdiction
extends to all government-owned or controlled
corporations, including their subsidiaries, and
other self-governing boards, commissions, or
agencies of the Government, and as herein
prescribed, including non governmental entities
subsidized by the government, those funded by
donations through the government, those
required to pay levies or government share, and
those for which the government has put up a
counterpart fund or those partly funded by the
government.
It was of no moment that a final and executory
decision already validated the claim against the
UP. The settlement of the monetary claim was
still subject to the primary jurisdiction of the
COA despite the final decision of the RTC
having already validated the claim.85 As such,
Stern Builders and dela Cruz as the claimants
had no alternative except to first seek the
approval of the COA of their monetary claim.
On its part, the RTC should have exercised
utmost caution, prudence and judiciousness in
dealing with the motions for execution against
the UP and the garnishment of the UP’s funds.
The RTC had no authority to direct the
immediate withdrawal of any portion of the
garnished funds from the depository banks of
the UP. By eschewing utmost caution, prudence
and judiciousness in dealing with the execution
and garnishment, and by authorizing the
withdrawal of the garnished funds of the UP, the
RTC acted beyond its jurisdiction, and all its
orders and issuances thereon were void and of
no legal effect, specifically: (a) the order Judge
Yadao issued on January 3, 2007 allowing
Stern Builders and dela Cruz to withdraw the
deposited garnished amount; (b) the order
Judge Yadao issued on January 16, 2007
directing DBP to forthwith release the garnish
amount to Stern Builders and dela Cruz; (c) the
sheriff’s report of January 17, 2007 manifesting
the full satisfaction of the writ of execution; and
(d) the order of April 10, 2007 deying the UP’s
motion for the redeposit of the withdrawn
amount. Hence, such orders and issuances
should be struck down without exception.
Nothing extenuated Judge Yadao’s successive
violations of Presidential Decree No. 1445. She
was aware of Presidential Decree No. 1445,
considering that the Court circulated to all
judges its Administrative Circular No. 10-
2000,86 issued on October 25, 2000, enjoining
them "to observe utmost caution, prudence and
judiciousness in the issuance of writs of
execution to satisfy money judgments against
government agencies and local government
units" precisely in order to prevent the
circumvention of Presidential Decree No. 1445,
as well as of the rules and procedures of the
COA, to wit:
In order to prevent possible circumvention
of the rules and procedures of the
Commission on Audit, judges are hereby
enjoined to observe utmost caution,
prudence and judiciousness in the issuance
of writs of execution to satisfy money
judgments against government agencies
and local government units.
Judges should bear in mind that in
Commissioner of Public Highways v. San Diego
(31 SCRA 617, 625 1970), this Court explicitly
stated:
"The universal rule that where the State gives
its consent to be sued by private parties either
by general or special law, it may limit claimant’s
action ‘only up to the completion of proceedings
anterior to the stage of execution’ and that the
power of the Court ends when the judgment is
rendered, since government funds and
properties may not be seized under writs of
execution or garnishment to satisfy such
judgments, is based on obvious considerations
of public policy. Disbursements of public funds
must be covered by the corresponding
appropriation as required by law. The functions
and public services rendered by the State
cannot be allowed to be paralyzed or disrupted
by the diversion of public funds from their
legitimate and specific objects, as appropriated
by law.
Moreover, it is settled jurisprudence that
upon determination of State liability, the
prosecution, enforcement or satisfaction
thereof must still be pursued in accordance
with the rules and procedures laid down in
P.D. No. 1445, otherwise known as the
Government Auditing Code of the
Philippines (Department of Agriculture v.
NLRC, 227 SCRA 693, 701-02 1993 citing
Republic vs. Villasor, 54 SCRA 84 1973). All
money claims against the Government must
first be filed with the Commission on Audit
which must act upon it within sixty days.
Rejection of the claim will authorize the
claimant to elevate the matter to the
Supreme Court on certiorari and in effect,
sue the State thereby (P.D. 1445, Sections
49-50).
However, notwithstanding the rule that
government properties are not subject to levy
and execution unless otherwise provided for by
statute (Republic v. Palacio, 23 SCRA 899
1968; Commissioner of Public Highways v. San
Diego, supra) or municipal ordinance
(Municipality of Makati v. Court of Appeals, 190
SCRA 206 1990), the Court has, in various
instances, distinguished between government
funds and properties for public use and those
not held for public use. Thus, in Viuda de Tan
Toco v. Municipal Council of Iloilo (49 Phil 52
1926, the Court ruled that "where property of a
municipal or other public corporation is sought
to be subjected to execution to satisfy
judgments recovered against such corporation,
the question as to whether such property is
leviable or not is to be determined by the usage
and purposes for which it is held." The following
can be culled from Viuda de Tan Toco v.
Municipal Council of Iloilo:
1. Properties held for public uses – and
generally everything held for governmental
purposes – are not subject to levy and sale
under execution against such corporation.
The same rule applies to funds in the hands
of a public officer and taxes due to a
municipal corporation.
2. Where a municipal corporation owns in its
proprietary capacity, as distinguished from its
public or government capacity, property not
used or used for a public purpose but for quasi-
private purposes, it is the general rule that such
property may be seized and sold under
execution against the corporation.
3. Property held for public purposes is not
subject to execution merely because it is
temporarily used for private purposes. If the
public use is wholly abandoned, such property
becomes subject to execution.
This Administrative Circular shall take effect
immediately and the Court Administrator shall
see to it that it is faithfully implemented.
Although Judge Yadao pointed out that neither
the CA nor the Court had issued as of then any
writ of preliminary injunction to enjoin the
release or withdrawal of the garnished amount,
she did not need any writ of injunction from a
superior court to compel her obedience to the
law. The Court is disturbed that an experienced
judge like her should look at public laws like
Presidential Decree No. 1445 dismissively
instead of loyally following and unquestioningly
implementing them. That she did so turned her
court into an oppressive bastion of mindless
tyranny instead of having it as a true haven for
the seekers of justice like the UP.
III
Period of appeal did not start without
effective
service of decision upon counsel of record;
Fresh-period rule announced in
Neypes v. Court of Appeals
can be given retroactive application
The UP next pleads that the Court gives due
course to its petition for review in the name of
equity in order to reverse or modify the adverse
judgment against it despite its finality. At stake
in the UP’s plea for equity was the return of the
amount of ₱ 16,370,191.74 illegally garnished
from its trust funds. Obstructing the plea is the
finality of the judgment based on the supposed
tardiness of UP’s appeal, which the RTC
declared on September 26, 2002. The CA
upheld the declaration of finality on February
24, 2004, and the Court itself denied the UP’s
petition for review on that issue on May 11,
2004 (G.R. No. 163501). The denial became
final on November 12, 2004.
It is true that a decision that has attained finality
becomes immutable and unalterable, and
cannot be modified in any respect,87 even if the
modification is meant to correct erroneous
conclusions of fact and law, and whether the
modification is made by the court that rendered
it or by this Court as the highest court of the
land.88 Public policy dictates that once a
judgment becomes final, executory and
unappealable, the prevailing party should not be
deprived of the fruits of victory by some
subterfuge devised by the losing party.
Unjustified delay in the enforcement of such
judgment sets at naught the role and purpose of
the courts to resolve justiciable controversies
with finality.89Indeed, all litigations must at some
time end, even at the risk of occasional errors.
But the doctrine of immutability of a final
judgment has not been absolute, and has
admitted several exceptions, among them: (a)
the correction of clerical errors; (b) the so-called
nunc pro tunc entries that cause no prejudice to
any party; (c) void judgments; and (d) whenever
circumstances transpire after the finality of the
decision that render its execution unjust and
inequitable.90 Moreover, in Heirs of Maura So v.
Obliosca,91 we stated that despite the absence
of the preceding circumstances, the Court is not
precluded from brushing aside procedural
norms if only to serve the higher interests of
justice and equity. Also, in Gumaru v. Quirino
State College,92 the Court nullified the
proceedings and the writ of execution issued by
the RTC for the reason that respondent state
college had not been represented in the
litigation by the Office of the Solicitor General.
We rule that the UP’s plea for equity warrants
the Court’s exercise of the exceptional power to
disregard the declaration of finality of the
judgment of the RTC for being in clear violation
of the UP’s right to due process.
Both the CA and the RTC found the filing on
June 3, 2002 by the UP of the notice of appeal
to be tardy. They based their finding on the fact
that only six days remained of the UP’s
reglementary 15-day period within which to file
the notice of appeal because the UP had filed a
motion for reconsideration on January 16, 2002
vis-à-vis the RTC’s decision the UP received on
January 7, 2002; and that because the denial of
the motion for reconsideration had been served
upon Atty. Felimon D. Nolasco of the UPLB
Legal Office on May 17, 2002, the UP had only
until May 23, 2002 within which to file the notice
of appeal.
The UP counters that the service of the denial
of the motion for reconsideration upon Atty.
Nolasco was defective considering that its
counsel of record was not Atty. Nolasco of the
UPLB Legal Office but the OLS in Diliman,
Quezon City; and that the period of appeal
should be reckoned from May 31, 2002, the
date when the OLS received the order. The UP
submits that the filing of the notice of appeal on
June 3, 2002 was well within the reglementary
period to appeal.
We agree with the submission of the UP.
Firstly, the service of the denial of the motion for
reconsideration upon Atty. Nolasco of the UPLB
Legal Office was invalid and ineffectual because
he was admittedly not the counsel of record of
the UP. The rule is that it is on the counsel and
not the client that the service should be made.93
That counsel was the OLS in Diliman, Quezon
City, which was served with the denial only on
May 31, 2002. As such, the running of the
remaining period of six days resumed only on
June 1, 2002,94 rendering the filing of the UP’s
notice of appeal on June 3, 2002 timely and well
within the remaining days of the UP’s period to
appeal.
Verily, the service of the denial of the motion for
reconsideration could only be validly made upon
the OLS in Diliman, and no other. The fact that
Atty. Nolasco was in the employ of the UP at
the UPLB Legal Office did not render the
service upon him effective. It is settled that
where a party has appeared by counsel, service
must be made upon such counsel.95 Service on
the party or the party’s employee is not effective
because such notice is not notice in law.96 This
is clear enough from Section 2, second
paragraph, of Rule 13, Rules of Court, which
explicitly states that: "If any party has appeared
by counsel, service upon him shall be made
upon his counsel or one of them, unless service
upon the party himself is ordered by the court.
Where one counsel appears for several parties,
he shall only be entitled to one copy of any
paper served upon him by the opposite side."
As such, the period to appeal resumed only on
June 1, 2002, the date following the service on
May 31, 2002 upon the OLS in Diliman of the
copy of the decision of the RTC, not from the
date when the UP was notified.97
Accordingly, the declaration of finality of the
judgment of the RTC, being devoid of factual
and legal bases, is set aside.
Secondly, even assuming that the service upon
Atty. Nolasco was valid and effective, such that
the remaining period for the UP to take a timely
appeal would end by May 23, 2002, it would still
not be correct to find that the judgment of the
RTC became final and immutable thereafter due
to the notice of appeal being filed too late on
June 3, 2002.
In so declaring the judgment of the RTC as final
against the UP, the CA and the RTC applied the
rule contained in the second paragraph of
Section 3, Rule 41 of the Rules of Court to the
effect that the filing of a motion for
reconsideration interrupted the running of the
period for filing the appeal; and that the period
resumed upon notice of the denial of the motion
for reconsideration. For that reason, the CA and
the RTC might not be taken to task for strictly
adhering to the rule then prevailing.
However, equity calls for the retroactive
application in the UP’s favor of the fresh-period
rule that the Court first announced in mid-
September of 2005 through its ruling in Neypes
v. Court of Appeals,98 viz:
To standardize the appeal periods provided in
the Rules and to afford litigants fair opportunity
to appeal their cases, the Court deems it
practical to allow a fresh period of 15 days
within which to file the notice of appeal in the
Regional Trial Court, counted from receipt of the
order dismissing a motion for a new trial or
motion for reconsideration.
The retroactive application of the fresh-period
rule, a procedural law that aims "to regiment or
make the appeal period uniform, to be counted
from receipt of the order denying the motion for
new trial, motion for reconsideration (whether
full or partial) or any final order or
resolution,"99 is impervious to any serious
challenge. This is because there are no vested
rights in rules of procedure.100 A law or
regulation is procedural when it prescribes rules
and forms of procedure in order that courts may
be able to administer justice.101 It does not come
within the legal conception of a retroactive law,
or is not subject of the general rule prohibiting
the retroactive operation of statues, but is given
retroactive effect in actions pending and
undetermined at the time of its passage without
violating any right of a person who may feel that
he is adversely affected.
We have further said that a procedural rule that
is amended for the benefit of litigants in
furtherance of the administration of justice shall
be retroactively applied to likewise favor actions
then pending, as equity delights in
equality.102 We may even relax stringent
procedural rules in order to serve substantial
justice and in the exercise of this Court’s equity
jurisdiction.103 Equity jurisdiction aims to do
complete justice in cases where a court of law is
unable to adapt its judgments to the special
circumstances of a case because of the
inflexibility of its statutory or legal jurisdiction.104
It is cogent to add in this regard that to deny the
benefit of the fresh-period rule to the UP would
amount to injustice and absurdity – injustice,
because the judgment in question was issued
on November 28, 2001 as compared to the
judgment in Neypes that was rendered in 1998;
absurdity, because parties receiving notices of
judgment and final orders issued in the year
1998 would enjoy the benefit of the fresh-period
rule but the later rulings of the lower courts like
that herein would not.105
Consequently, even if the reckoning started
from May 17, 2002, when Atty. Nolasco
received the denial, the UP’s filing on June 3,
2002 of the notice of appeal was not tardy
within the context of the fresh-period rule. For
the UP, the fresh period of 15-days counted
from service of the denial of the motion for
reconsideration would end on June 1, 2002,
which was a Saturday. Hence, the UP had until
the next working day, or June 3, 2002, a
Monday, within which to appeal, conformably
with Section 1 of Rule 22, Rules of Court, which
holds that: "If the last day of the period, as thus
computed, falls on a Saturday, a Sunday, or a
legal holiday in the place where the court sits,
the time shall not run until the next working
day."
IV
Awards of monetary damages,
being devoid of factual and legal bases,
did not attain finality and should be deleted
Section 14 of Article VIII of the Constitution
prescribes that express findings of fact and of
law should be made in the decision rendered by
any court, to wit:
Section 14. No decision shall be rendered by
any court without expressing therein clearly and
distinctly the facts and the law on which it is
based.
No petition for review or motion for
reconsideration of a decision of the court shall
be refused due course or denied without stating
the legal basis therefor.
Implementing the constitutional provision in civil
actions is Section 1 of Rule 36, Rules of Court,
viz:
Section 1. Rendition of judgments and final
orders. — A judgment or final order determining
the merits of the case shall be in writing
personally and directly prepared by the judge,
stating clearly and distinctly the facts and the
law on which it is based, signed by him, and
filed with the clerk of the court. (1a)
The Constitution and the Rules of Court
apparently delineate two main essential parts of
a judgment, namely: the body and the decretal
portion. Although the latter is the controlling
part,106 the importance of the former is not to be
lightly regarded because it is there where the
court clearly and distinctly states its findings of
fact and of law on which the decision is based.
To state it differently, one without the other is
ineffectual and useless. The omission of either
inevitably results in a judgment that violates the
letter and the spirit of the Constitution and the
Rules of Court.
The term findings of fact that must be found in
the body of the decision refers to statements of
fact, not to conclusions of law.107 Unlike in
pleadings where ultimate facts alone need to be
stated, the Constitution and the Rules of Court
require not only that a decision should state the
ultimate facts but also that it should specify the
supporting evidentiary facts, for they are what
are called the findings of fact.
The importance of the findings of fact and of law
cannot be overstated. The reason and purpose
of the Constitution and the Rules of Court in that
regard are obviously to inform the parties why
they win or lose, and what their rights and
obligations are. Only thereby is the demand of
due process met as to the parties. As Justice
Isagani A. Cruz explained in Nicos Industrial
Corporation v. Court of Appeals:108
It is a requirement of due process that the
parties to a litigation be informed of how it was
decided, with an explanation of the factual and
legal reasons that led to the conclusions of the
court. The court cannot simply say that
judgment is rendered in favor of X and against
Y and just leave it at that without any
justification whatsoever for its action. The losing
party is entitled to know why he lost, so he may
appeal to a higher court, if permitted, should he
believe that the decision should be reversed. A
decision that does not clearly and distinctly
state the facts and the law on which it is based
leaves the parties in the dark as to how it was
reached and is especially prejudicial to the
losing party, who is unable to pinpoint the
possible errors of the court for review by a
higher tribunal.
Here, the decision of the RTC justified the grant
of actual and moral damages, and attorney’s
fees in the following terse manner, viz:
xxx The Court is not unmindful that due to
defendants’ unjustified refusal to pay their
outstanding obligation to plaintiff, the same
suffered losses and incurred expenses as he
was forced to re-mortgage his house and lot
located in Quezon City to Metrobank (Exh.
"CC") and BPI Bank just to pay its monetary
obligations in the form of interest and penalties
incurred in the course of the construction of the
subject project.109
The statement that "due to defendants’
unjustified refusal to pay their outstanding
obligation to plaintiff, the same suffered losses
and incurred expenses as he was forced to re-
mortgage his house and lot located in Quezon
City to Metrobank (Exh. "CC") and BPI Bank
just to pay its monetary obligations in the form
of interest and penalties incurred in the course
of the construction of the subject project" was
only a conclusion of fact and law that did not
comply with the constitutional and statutory
prescription. The statement specified no
detailed expenses or losses constituting the ₱
5,716,729.00 actual damages sustained by
Stern Builders in relation to the construction
project or to other pecuniary hardships. The
omission of such expenses or losses directly
indicated that Stern Builders did not prove them
at all, which then contravened Article 2199, Civil
Code, the statutory basis for the award of actual
damages, which entitled a person to an
adequate compensation only for such pecuniary
loss suffered by him as he has duly proved. As
such, the actual damages allowed by the RTC,
being bereft of factual support, were speculative
and whimsical. Without the clear and distinct
findings of fact and law, the award amounted
only to an ipse dixit on the part of the
RTC,110 and did not attain finality.
There was also no clear and distinct statement
of the factual and legal support for the award of
moral damages in the substantial amount of ₱
10,000,000.00. The award was thus also
speculative and whimsical. Like the actual
damages, the moral damages constituted
another judicial ipse dixit, the inevitable
consequence of which was to render the award
of moral damages incapable of attaining finality.
In addition, the grant of moral damages in that
manner contravened the law that permitted the
recovery of moral damages as the means to
assuage "physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social
humiliation, and similar injury."111 The
contravention of the law was manifest
considering that Stern Builders, as an artificial
person, was incapable of experiencing pain and
moral sufferings.112 Assuming that in granting
the substantial amount of ₱ 10,000,000.00 as
moral damages, the RTC might have had in
mind that dela Cruz had himself suffered mental
anguish and anxiety. If that was the case, then
the RTC obviously disregarded his separate
and distinct personality from that of Stern
Builders.113 Moreover, his moral and emotional
sufferings as the President of Stern Builders
were not the sufferings of Stern Builders. Lastly,
the RTC violated the basic principle that moral
damages were not intended to enrich the
plaintiff at the expense of the defendant, but to
restore the plaintiff to his status quo ante as
much as possible. Taken together, therefore, all
these considerations exposed the substantial
amount of ₱ 10,000,000.00 allowed as moral
damages not only to be factually baseless and
legally indefensible, but also to be
unconscionable, inequitable and unreasonable.
Like the actual and moral damages, the ₱
150,000.00, plus ₱ 1,500.00 per appearance,
granted as attorney’s fees were factually
unwarranted and devoid of legal basis. The
general rule is that a successful litigant cannot
recover attorney’s fees as part of the damages
to be assessed against the losing party because
of the policy that no premium should be placed
on the right to litigate.114 Prior to the effectivity of
the present Civil Code, indeed, such fees could
be recovered only when there was a stipulation
to that effect. It was only under the present Civil
Code that the right to collect attorney’s fees in
the cases mentioned in Article 2208115 of the
Civil Code came to be
recognized.116 Nonetheless, with attorney’s fees
being allowed in the concept of actual
damages,117 their amounts must be factually
and legally justified in the body of the decision
and not stated for the first time in the decretal
portion.118 Stating the amounts only in the
dispositive portion of the judgment is not
enough;119 a rendition of the factual and legal
justifications for them must also be laid out in
the body of the decision.120
That the attorney’s fees granted to the private
respondents did not satisfy the foregoing
requirement suffices for the Court to undo
them.121 The grant was ineffectual for being
contrary to law and public policy, it being clear
that the express findings of fact and law were
intended to bring the case within the exception
and thereby justify the award of the attorney’s
fees. Devoid of such express findings, the
award was a conclusion without a premise, its
basis being improperly left to speculation and
conjecture.122
Nonetheless, the absence of findings of fact and
of any statement of the law and jurisprudence
on which the awards of actual and moral
damages, as well as of attorney’s fees, were
based was a fatal flaw that invalidated the
decision of the RTC only as to such awards. As
the Court declared in Velarde v. Social Justice
Society,123 the failure to comply with the
constitutional requirement for a clear and
distinct statement of the supporting facts and
law "is a grave abuse of discretion amounting to
lack or excess of jurisdiction" and that
"(d)ecisions or orders issued in careless
disregard of the constitutional mandate are a
patent nullity and must be struck down as
void."124 The other item granted by the RTC
(i.e., ₱ 503,462.74) shall stand, subject to the
action of the COA as stated herein.

WHEREFORE, the Court GRANTS the petition

for review on certiorari; REVERSES and SETS
ASIDE the decision of the Court of Appeals
under review; ANNULS the orders for the
garnishment of the funds of the University of the
Philippines and for the release of the garnished
amount to Stern Builders Corporation and
Servillano dela Cruz; and DELETES from the
decision of the Regional Trial Court dated
November 28, 2001 for being void only the
awards of actual damages of ₱ 5,716,729.00,
moral damages of ₱ 10,000,000.00, and
attorney's fees of ₱ 150,000.00, plus ₱ 1,500.00
per appearance, in favor of Stern Builders
Corporation and Servillano dela Cruz.

The Court ORDERS Stem Builders Corporation

and Servillano dela Cruz to redeposit the
amount of ₱ 16,370,191.74 within 10 days from
receipt of this decision.

Costs of suit to be paid by the private

respondents.

SO ORDERED.
 SECOND DIVISION
[G.R. No. 128066. June 19, 2000]
JARDINE DAVIES INC., petitioner, vs.
COURT OF APPEALS and FAR EAST MILLS
SUPPLY CORPORATION, respondents.
[G.R. No. 128069 June 19, 2000]
PURE FOODS CORPORATION, petitioner,
vs. COURT OF APPEALS and FAR EAST
MILLS SUPPLY
CORPORATION, respondents.
DECISION
BELLOSILLO, J.:
This is rather a simple case for specific
performance with damages which could have
been resolved through mediation and
conciliation during its infancy stage had the
parties been earnest in expediting the disposal
of this case. They opted however to resort to full
court proceedings and denied themselves the
benefits of alternative dispute resolution, thus
making the process more arduous and long-
drawn.
The controversy started in 1992 at the height of
the power crisis which the country was then
experiencing. To remedy and curtail further
losses due to the series of power failures,
petitioner PURE FOODS CORPORATION
(hereafter PUREFOODS) decided to install two
(2) 1500 KW generators in its food processing
plant in San Roque, Marikina City.
Sometime in November 1992 a bidding for the
supply and installation of the generators was
held. Several suppliers and dealers were invited
to attend a pre-bidding conference to discuss
the conditions, propose scheme and
specifications that would best suit the needs of
PUREFOODS. Out of the eight (8) prospective
bidders who attended the pre-bidding
conference, only three (3) bidders, namely,
respondent FAR EAST MILLS SUPPLY
CORPORATION (hereafter FEMSCO),
MONARK and ADVANCE POWER submitted
bid proposals and gave bid bonds equivalent to
5% of their respective bids, as required.
Thereafter, in a letter dated 12 December 1992
addressed to FEMSCO President Alfonso Po,
PUREFOODS confirmed the award of the
contract to FEMSCO -
Gentlemen:
This will confirm that Pure
Foods Corporation has
awarded to your firm the
project: Supply and
Installation of two (2) units of
1500 KW/unit Generator Sets
at the Processed Meats Plant,
Bo. San Roque, Marikina,
based on your proposal
number PC 28-92 dated
November 20, 1992, subject
to the following basic terms
and conditions:
1. Lump sum contract
of P6,137,293.00 (VAT
included), for the supply of
materials and labor for the
local portion and the labor for
the imported materials,
payable by progress billing
twice a month, with ten
percent (10%) retention. The
retained amount shall be
released thirty (30) days after
acceptance of the completed
project and upon posting of
Guarantee Bond in an
amount equivalent to twenty
percent (20%) of the contract
price. The Guarantee Bond
shall be valid for one (1) year
from completion and
acceptance of project. The
contract price includes future
increase/s in costs of
materials and labor;
2. The project shall be
undertaken pursuant to the
attached specifications. It is
understood that any item
required to complete the
project, and those not
included in the list of items
shall be deemed included and
covered and shall be
performed;
3. All materials shall be brand
new;
4. The project shall
commence immediately and
must be completed within
twenty (20) working days after
the delivery of Generator Set
to Marikina Plant, penalty
equivalent to 1/10 of 1% of
the purchase price for every
day of delay;
5. The Contractor shall put up
Performance Bond equivalent
to thirty (30%) of the contract
price, and shall procure All
Risk Insurance equivalent to
 the contract price upon
commencement of the
project. The All Risk
Insurance Policy shall be
endorsed in favor of and shall
be delivered to Pure Foods
Corporation;
6. Warranty of one (1) year
against defective material
and/or workmanship.
Once finalized, we shall ask
you to sign the formal
contract embodying the
foregoing terms and
conditions.
Immediately, FEMSCO submitted the required
performance bond in the amount
of P1,841,187.90 and contractors all-risk
insurance policy in the amount
of P6,137,293.00 which PUREFOODS through
its Vice President Benedicto G. Tope
acknowledged in a letter dated 18 December
1992. FEMSCO also made arrangements with
its principal and started the PUREFOODS
project by purchasing the necessary materials.
PUREFOODS on the other hand returned
FEMSCOs Bidders Bond in the amount
of P1,000,000.00, as requested.
Later, however, in a letter dated 22 December
1992, PUREFOODS through its Senior Vice
President Teodoro L. Dimayuga unilaterally
canceled the award as "significant factors were
uncovered and brought to (their) attention which
dictate (the) cancellation and warrant a total
review and re-bid of (the) project."
Consequently, FEMSCO protested the
cancellation of the award and sought a meeting
with PUREFOODS. However, on 26 March
1993, before the matter could be resolved,
PUREFOODS already awarded the project and
entered into a contract with JARDINE NELL, a
division of Jardine Davies, Inc. (hereafter
JARDINE), which incidentally was not one of
the bidders.
FEMSCO thus wrote PUREFOODS to honor its
contract with the former, and to JARDINE to
cease and desist from delivering and installing
the two (2) generators at PUREFOODS. Its
demand letters unheeded, FEMSCO sued both
PUREFOODS and JARDINE: PUREFOODS for
reneging on its contract, and JARDINE for its
unwarranted interference and inducement. Trial
ensued. After FEMSCO presented its evidence,
JARDINE filed a Demurrer to Evidence.
On 27 June 1994 the Regional Trial Court of
Pasig, Br. 68,[1] granted JARDINEs Demurrer to
Evidence. The trial court concluded that "[w]hile
it may seem to the plaintiff that by the actions of
the two defendants there is something
underhanded going on, this is all a matter of
perception, and unsupported by hard evidence,
mere suspicions and suppositions would not
stand up very well in a court of
law."[2] Meanwhile trial proceeded as regards
the case against PUREFOODS.
On 28 July 1994 the trial court rendered a
decision ordering PUREFOODS: (a) to
indemnify FEMSCO the sum of P2,300,000.00
representing the value of engineering services it
rendered; (b) to pay FEMSCO the sum of
US$14,000.00 or its peso equivalent,
and P900,000.00 representing contractor's
mark-up on installation work, considering that it
would be impossible to compel PUREFOODS to
honor, perform and fulfill its contractual
obligations in view of PUREFOOD's contract
with JARDINE and noting that construction had
already started thereon; (c) to pay attorneys
fees in an amount equivalent to 20% of the total
amount due; and, (d) to pay the costs. The trial
court dismissed the counterclaim filed by
PUREFOODS for lack of factual and legal
basis.
Both FEMSCO and PUREFOODS appealed to
the Court of Appeals. FEMSCO appealed the
27 June 1994 Resolution of the trial court which
granted the Demurrer to Evidence filed by
JARDINE resulting in the dismissal of the
complaint against it, while PUREFOODS
appealed the 28 July 1994 Decision of the same
court which ordered it to pay FEMSCO.
On 14 August 1996 the Court of Appeals
affirmed in toto the 28 July 1994 Decision of the
trial court.[3] It also reversed the 27 June 1994
Resolution of the lower court and ordered
JARDINE to pay FEMSCO damages for
inducing PUREFOODS to violate the latters
contract with FEMSCO. As such, JARDINE was
ordered to pay FEMSCO P2,000,000.00 for
moral damages. In addition, PUREFOODS was
also directed to pay FEMSCO P2,000,000.00 as
moral damages and P1,000,000.00 as
exemplary damages as well as 20% of the total
amount due as attorney's fees.
On 31 January 1997 the Court of Appeals
denied for lack of merit the separate motions for
reconsideration filed by PUREFOODS and
JARDINE. Hence, these two (2) petitions for
review filed by PUREFOODS and JARDINE
which were subsequently consolidated.
PUREFOODS maintains that the conclusions of
both the trial court and the appellate court are
premised on a misapprehension of facts. It
argues that its 12 December 1992 letter to
FEMSCO was not an acceptance of the latter's
bid proposal and award of the project but more
of a qualified acceptance constituting a counter-
offer which required FEMSCO's
express conforme. Since PUREFOODS never
received FEMSCOs conforme, PUREFOODS
was very well within reason to revoke its
qualified acceptance or counter-offer. Hence, no
contract was perfected between PUREFOODS
and FEMSCO. PUREFOODS also contends
that it was never in bad faith when it dealt with
FEMSCO. Hence moral and exemplary
damages should not have been awarded.
Corollarily, JARDINE asserts that the records
are bereft of any showing that it had prior
knowledge of the supposed contract between
PUREFOODS and FEMSCO, and that it
induced PUREFOODS to violate the latters
alleged contract with FEMSCO. Moreover,
JARDINE reasons that FEMSCO, an artificial
person, is not entitled to moral damages. But
granting arguendothat the award of moral
damages is proper, P2,000,000.00 is extremely
excessive.
In the main, these consolidated cases present
two (2) issues: first, whether there existed a
perfected contract between PUREFOODS and
FEMSCO; and second, granting there existed a
perfected contract, whether there is any
showing that JARDINE induced or connived
with PUREFOODS to violate the latter's contract
with FEMSCO.
A contract is defined as "a juridical convention
manifested in legal form, by virtue of which one
or more persons bind themselves in favor of
another or others, or reciprocally, to the
fulfillment of a prestation to give, to do, or not to
do."[4] There can be no contract unless the
following requisites concur: (a) consent of the
contracting parties; (b) object certain which is
the subject matter of the contract; and, (c)
cause of the obligation which is established.[5] A
contract binds both contracting parties and has
the force of law between them.
Contracts are perfected by mere consent, upon
the acceptance by the offeree of the offer made
by the offeror. From that moment, the parties
are bound not only to the fulfillment of what has
been expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and
law.[6] To produce a contract, the acceptance
must not qualify the terms of the offer. However,
the acceptance may be express or
implied.[7] For a contract to arise, the
acceptance must be made known to the offeror.
Accordingly, the acceptance can be withdrawn
or revoked before it is made known to the
offeror.
In the instant case, there is no issue as regards
the subject matter of the contract and the cause
of the obligation. The controversy lies in the
consent - whether there was an acceptance of
the offer, and if so, if it was communicated,
thereby perfecting the contract.
To resolve the dispute, there is a need to
determine what constituted the offer and the
acceptance. Since petitioner PUREFOODS
started the process of entering into the contract
by conducting a bidding, Art. 1326 of the Civil
Code, which provides that "[a]dvertisements for
bidders are simply invitations to make
proposals," applies. Accordingly, the Terms and
Conditions of the Bidding disseminated by
petitioner PUREFOODS constitutes the
"advertisement" to bid on the project. The bid
proposals or quotations submitted by the
prospective suppliers including respondent
FEMSCO, are the offers. And, the reply of
petitioner PUREFOODS, the acceptance or
rejection of the respective offers.
Quite obviously, the 12 December 1992 letter of
petitioner PUREFOODS to FEMSCO
constituted acceptance of respondent
FEMSCOs offer as contemplated by law. The
tenor of the letter, i.e., "This will confirm that
Pure Foods has awarded to your firm
(FEMSCO) the project," could not be more
categorical. While the same letter enumerated
certain "basic terms and conditions," these
conditions were imposed on the performance of
the obligation rather than on the perfection of
the contract. Thus, the first "condition" was
merely a reiteration of the contract price and
billing scheme based on the Terms and
Conditions of Bidding and the bid or previous
offer of respondent FEMSCO. The second and
third "conditions" were nothing more than
general statements that all items and materials
including those excluded in the list but
necessary to complete the project shall be
deemed included and should be brand new.
The fourth "condition" concerned the completion
of the work to be done, i.e., within twenty (20)
days from the delivery of the generator set, the
purchase of which was part of the contract. The
fifth "condition" had to do with the putting up of
a performance bond and an all-risk insurance,
both of which should be given upon
commencement of the project. The sixth
"condition" related to the standard warranty of
one (1) year. In fine, the enumerated "basic
terms and conditions" were prescriptions on
how the obligation was to be performed and
implemented. They were far from being
conditions imposed on the perfection of the
contract.
In Babasa v. Court of Appeals[8] we
distinguished between a condition imposed on
the perfection of a contract and a condition
imposed merely on the performance of an
obligation. While failure to comply with the first
condition results in the failure of a contract,
failure to comply with the second merely gives
the other party options and/or remedies to
protect his interests.
We thus agree with the conclusion of
respondent appellate court which affirmed the
trial court -
As can be inferred from the
actual phrase used in the first
portion of the letter, the
decision to award the contract
has already been made. The
letter only serves as a
confirmation of such decision.
Hence, to the Courts mind,
there is already an
acceptance made of the offer
received by Purefoods.
Notwithstanding the terms
and conditions enumerated
therein, the offer has been
accepted and/or amplified the
details of the terms and
conditions contained in the
Terms and Conditions of
Bidding given out by
Purefoods to prospective
bidders.[9]
But even granting arguendo that the 12
December 1992 letter of petitioner
PUREFOODS constituted a "conditional
counter-offer," respondent FEMCO's
submission of the performance bond and
contractor's all-risk insurance was an implied
acceptance, if not a clear indication of its
acquiescence to, the "conditional counter-offer,"
which expressly stated that the performance
bond and the contractor's all-risk insurance
should be given upon the commencement of the
contract. Corollarily, the acknowledgment
thereof by petitioner PUREFOODS, not to
mention its return of FEMSCO's bidder's bond,
was a concrete manifestation of its knowledge
that respondent FEMSCO indeed consented to
the "conditional counter-offer." After all, as
earlier adverted to, an acceptance may either
be express or implied,[10] and this can be
inferred from the contemporaneous and
subsequent acts of the contracting parties.
Accordingly, for all intents and purposes, the
contract at that point has been perfected, and
respondent FEMSCO's conforme would only be
a mere surplusage. The discussion of the price
of the project two (2) months after the 12
December 1992 letter can be deemed as
nothing more than a pressure being exerted by
petitioner PUREFOODS on respondent
FEMSCO to lower the price even after the
contract had been perfected. Indeed from the
facts, it can easily be surmised that petitioner
PUREFOODS was haggling for a lower price
even after agreeing to the earlier quotation, and
was threatening to unilaterally cancel the
contract, which it eventually did. Petitioner
PUREFOODS also makes an issue out of the
absence of a purchase order (PO). Suffice it to
say that purchase orders or POs do not make or
break a contract. Thus, even the tenor of the
subsequent letter of petitioner
PUREFOODS, i.e., "Pure Foods Corporation is
hereby canceling the award to your company of
the project," presupposes that the contract has
been perfected. For, there can be no
cancellation if the contract was not perfected in
the first place.
Petitioner PUREFOODS also argues that it was
never in bad faith. On the contrary, it believed in
good faith that no such contract was perfected.
We are not convinced. We subscribe to the
factual findings and conclusions of the trial court
which were affirmed by the appellate court -
Hence, by the unilateral
cancellation of the contract,
the defendant (petitioner
PURE FOODS) has acted
with bad faith and this was
further aggravated by the
subsequent inking of a
contract between defendant
Purefoods and erstwhile co-
defendant Jardine. It is very
evident that Purefoods
thought that by the expedient
means of merely writing a
letter would automatically
cancel or nullify the existing
contract entered into by both
parties after a process of
bidding. This, to the Courts
mind, is a flagrant violation of
the express provisions of the
law and is contrary to fair and
just dealings to which every
man is due.[11]
This Court has awarded in the past moral
damages to a corporation whose reputation has
been besmirched.[12] In the instant case,
respondent FEMSCO has sufficiently shown
that its reputation was tarnished after it
immediately ordered equipment from its
suppliers on account of the urgency of the
project, only to be canceled later. We thus
sustain respondent appellate court's award of
moral damages. We however reduce the award
from P2,000,000.00 to P1,000,000.00, as moral
damages are never intended to enrich the
recipient. Likewise, the award of exemplary
damages by way of example for the public good
is excessive and should be reduced
to P100,000.00.
Petitioner JARDINE maintains on the other
hand that respondent appellate court erred in
ordering it to pay moral damages to respondent
FEMSCO as it supposedly induced
PUREFOODS to violate the contract with
FEMSCO. We agree. While it may seem that
petitioners PUREFOODS and JARDINE
connived to deceive respondent FEMSCO, we
find no specific evidence on record to support
such perception. Likewise, there is no showing SO ORDERED.
whatsoever that petitioner JARDINE induced
petitioner PUREFOODS. The similarity in the
design submitted to petitioner PUREFOODS by
both petitioner JARDINE and respondent
FEMSCO, and the tender of a lower quotation
by petitioner JARDINE are insufficient to show
that petitioner JARDINE indeed induced
petitioner PUREFOODS to violate its contract
with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as

follows:

(a) The petition in G.R. No. 128066 is

GRANTED. The assailed Decision of the Court
of Appeals reversing the 27 June 1994
resolution of the trial court and ordering
petitioner JARDINE DAVIES, INC., to pay
private respondent FAR EAST MILLS SUPPLY
CORPORATION P2,000,000.00 as moral
damages is REVERSED and SET ASIDE for
insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED.

The assailed Decision of the Court of Appeals
ordering petitioner PURE FOODS
CORPORATION to pay private respondent FAR
EAST MILLS SUPPLY CORPORATION the
sum of P2,300,000.00 representing the value of
engineering services it rendered, US$14,000.00
or its peso equivalent, and P900,000.00
representing the contractor's mark-up on
installation work, as well as attorney's fees
equivalent to twenty percent (20%) of the total
amount due, is AFFIRMED. In addtion,
petitioner PURE FOODS CORPORATION is
ordered to pay private respondent FAR EAST
MILLS SUPPLY CORPORATION moral
damages in the amount of P1,000,000.00 and
exemplary damages in the amount
of P1,000,000.00. Costs against petitioner.
 FIRST DIVISION The undisputed facts of the case, as found
by the respondent Court of Appeals and quoted
by petitioners, are as follows:
[G.R. No. 117097. March 21, 1997] "On February 22, 1991, x x x [private respondent]
filed an application with the Office of the Mayor of
Candon, Ilocos Sur, for the issuance of a permit for
the opening and operation of a branch of the
Acebedo Optical in that municipality.
SAMAHAN NG OPTOMETRISTS SA
PILIPINAS, ILOCOS SUR-ABRA
CHAPTER, EDUARDO MA. The application was opposed by the x x x [petitioner]
Samahan ng Optometrists sa Pilipinas (SOP) which
GUIRNALDA, DANTE G. PACQUING
and OCTAVIO A. DE contended that x x x [private respondent] is a
juridical entity not qualified to practice optometry.
PERALTA, petitioners, vs.
ACEBEDO INTERNATIONAL
CORPORATION and the HON. On March 6, 1991, x x x [private respondent] filed
COURT OF APPEALS, respondents. its answer, arguing it is not the corporation, but the
optometrists employed by it, who would be
DECISION practicing optometry.
HERMOSISIMA, JR., J.: On April 17, 1991, the Mayor of Candon created a
committee, composed of "public respondents
Before us is a petition seeking the review Eduardo Ma. Guirnalda, Dante G. Pacquing and
and ultimately the reversal of the decision [1] of Octavio de Peralta, to pass on [private respondent's]
the Court of Appeals[2] which rejected what application.
petitioners vehemently claim to be a prohibition,
under Republic Act (RA.) No. 1998, popularly On September 26, 1991 the committee rendered a
known as the old Optometry Law, against the decision denying [private respondent's] application
employment by corporations, usually optical for a mayor's permit to operate a branch in Candon
shops and eyeware stores, of optometrists, such and ordering x x x [private respondent] to close its
practice, according to petitioners, being an establishment within fifteen (15) days from receipt
indirect violation of the rule against corporations of the decision. Acebedo moved for a
exercising professions reserved only to natural reconsideration but its motion was denied on
persons. Petitioners understandably did not November 14, 1991. x x x [Private respondent] was
welcome the herein assailed decision because ordered to close its establishment within ten (10)
they have, earlier, obtained a days from receipt of the order.
decision[3] favorable to them from the Regional
Trial Court of Candon, Ilocos Sur, Branch 23,
presided over by Judge Gabino Balbin, Jr. The On December 9, 1991, x x x [private respondent]
said judge had, in the main, ruled that the filed with the Court of Appeals a petition
operations of private respondent Acebedo for certiorari (CA G.R SP No. 26782), questioning
International Corporation involves the practice of the decision of respondent committee. Its petition,
optometry which is precluded by RA. No. 1998. however, was referred to the court a quo, which on
December 16, 1992, dismissed Acebedo's petition.
Hence, x x x [the] appeal [to the respondent Court of
Appeals]."[4]
The singular issue, admittedly extensively
debated and intensely contested not only by the
members of the optometry profession and the
players in the business of selling optical ware,
supplies, substances and instruments but also by
the members of the Senate during the
deliberations respecting R A. 8050, otherwise
known as Revised New Optometry Law, is this:
May corporations, engaged in the business of
selling optical wares, supplies, substances and
instruments which, as an incident to and in the
ordinary course of the business hire
optometrists, be said to be practicing the
profession of optometry which, by legal mandate,
may only be engaged in by natural persons
possessed of specific legal qualifications?
The trial court resolved this issue in the
affirmative. In so finding, it explained, thus:
"The denial of the application of Acebedo rested on
the grounds that it is operating an optical shop and it
is practicing optometry where its charter does not
grant to it authority to practice the former. Acebedo
submits that the findings of the Commission have no
basis both in law and in fact. It argues that the hiring
of optometrists by the petitioner is merely incidental
to its main business which is the sale of optical
products. Acebedo contends further that its
employees have a personality separate and distinct
from that of Acebedo which is a juridical entity, and
it cannot therefore be considered as engaged in
optometry.
The Court disagrees.
Quoted for the enlightenment of both parties is a
portion of the contested Decision, to wit:
'The visit revealed the following:
1. The establishment was manned by three
personnel: Dr. Salvador Pagarigan, optometrist; Miss
Lilibeth Begonia, receptionist; and a laboratory
technician, who refused to give his name;
2. There were several shelves containing eyeglasses;
3. There were benches where, according to Miss
Begonia, would-be clients can sit while waiting for
their turn to be examined;
4. An examination room complete with an optical
chair and optical charts; and,
5. An optical laboratory.'
The Court is very much aware of the existence of
several shops owned by Acebedo. They are
operating up to the present. But the Court has to rely
in this case on the findings of the Commission
created by the Mayor of Candon in the absence of
proof that the same was arrived at hastily and
without regard for the rights of the parties. In fact,
the contested Decision was issued only after an
ocular inspection was conducted and the parties have
submitted their respective memorandum.
The findings of the Commission reveal that the
operation of Acebedo's local shop involves the
practice of optometry. If indeed Acebedo is engaged
in the sale of optical products, the absence of sales
clerks more than demonstrate its real business. In the
contested Decision, the floor plan of the shop was
even commented on as that of an optical shop. As
noted by the members of the Commission, there was
also a banner in front of the shop prominently
display advertising free consultations (libreng
consulta sa mata). These facts, taken together, denote
that Acebedo was operating in Candon an optical
shop contrary to law.
While it is also true that a corporation has a
personality separate and distinct from that of its
personnel, the veil of corporate fiction cannot be
used for the purpose of some illegal activity. The
veil of corporate fiction can be pierced, as in this
case, and the acts of the personnel of the corporation
will be considered as those of the corporation.
Acebedo then is engaged in the practice of
optometry."[5]
Disagreeing with the foregoing decision of
the trial court, private respondent appealed
therefrom and asked the respondent Court of
Appeals to reverse the same on the ground that
the court a quo erred in concluding that private
respondent was engaged in the practice of
optometry by operating an optical shop.
Respondent appellate court found that
private respondent's contentions merited the
reversal of the court a quo's decision. The
respondent court, speaking through Court of
Appeals Presiding Justice, now Supreme Court
Associate Justice Vicente V. Mendoza,
ratiocinated in this wise:
"First. x x x [Private respondent] maintains that it is
not practicing optometry nor is it operating an
optical clinic. The contention has merit. The
amended Articles of Incorporation of x x x [private
respondent] in part states:
PRIMARY PURPOSES
1. To own, maintain, conduct, operate and carry on
the business of dispensing opticians and optical
establishments, and in the course of the business, to
buy, sell, ship, store and otherwise use, deal in,
acquire and dispose of every kind of optical,
ophthalmic and scientific instrument, glass, lens,
optical solutions or equipment necessary or
convenient to the operation and conduct of the
general business of dispensing opticians.
SECONDARY PURPOSES
....
3. To do all and everything necessary, suitable or
proper for the accomplishment of any of the
purposes, the attainment of any of the objects, or in
the exercise of any of the powers herein set forth,
either alone or in conjunction with other
corporations, firms or individuals and either as
principal or agents and to do every other act or acts,
thing or things, incidental or appurtenant to or
growing out of or connected with the
abovementioned objects, purposes or powers.
Clearly, the corporation is not an optical clinic. Nor
is it but rather the optometrists employed by it who
are engaged in the practice of optometry. Petitioner-
appellant simply dispenses optical and ophthalmic
instruments and supplies.
Indeed, the Optometry Law (Rep. Act No. 1998),
which x x x [petitioners] cite, does not prohibit
corporations, like x x x [private respondent; from
employing licensed optometrists.
What it prohibits is the practice of the profession
without license by those engaged in it. This is clear
from Sec. 2 of the law which provides:
No person shall practice or attempt to practice
optometry as defined in this Act, without holding a
valid certificate of registration as optometrist issued
to him by the Board of Examiners in Optometry
herein created and in accordance with the provisions
hereof: Provided, that valid certificates of
registration as optometrists shall be issued to
optometrists of good moral character now registered
in accordance with the provisions of chapter thirty-
three of the Revised Administrative Code, who shall,
by application within a period of one year from the
effectivity of this Act, be exempt from the provisions
of sections eleven, twelve and twenty-three of this
Act. . . .
The prohibition is thus addressed to natural persons
who are required to have a valid certificate of
registration as optometrist' and who must be of 'good
moral character'. The prohibition can have no
application to x x x [private respondent] which is not
itself engaged in the practice of optometry. As the
Professional Regulation Commission said, "Acebedo
Optical, Acebedo Optical Clinic, Acebedo Optical
Co., Inc. and Acebedo International, Inc. are not
natural persons who can take the Optometrist
licensure examinations. They are not, and cannot be
registered as Optometrist under RA 1998 [The
Optometry Law].'"[6]
Petitioners filed a Motion for
Reconsideration of the aforegoing decision. It
was, however, denied by respondent appellate
court. Hence, this petition anchored on the
following sole ground:
"ISSUE
WHETHER OR NOT THE HONORABLE COURT
OF APPEALS ERRED IN DECLARING THAT
PRIVATE RESPONDENT ACEBEDO
INTERNATIONAL CORPORATION DOES NOT
VIOLATE THE OPTOMETRY LAW (R. A. NO.
1998) WHEN IT EMPLOYS OPTOMETRISTS TO
ENGAGE IN THE PRACTICE OF OPTOMETRY
UNDER ITS NAME AND FOR ITS BEHALF
The herein petitioner most respectfully submits that
the private respondent Acebedo International
Corporation flagrantly violates R. A. No. 1998 and
the Corporation Code of the Philippines when it
employs optometrists to engage in the practice of
optometry under its name and for its behalf."[7]
We hold that the petition lacks merit. the intention of the legislature is to preclude the
formation of the so-called optometry
Private respondent does not deny that it corporations because such is tantamount to the
employs optometrists whose role in the practice of the profession of optometry which is
operations of its optical shops is to administer the
legally exercisable only by natural persons and
proper eye examination in order to determine the professional partnerships. We have carefully
correct type and grade of lenses to prescribe to
reviewed RA. No. 1998 however, and we find
persons purchasing the same from private nothing therein that supports petitioner's insistent
respondent's optical shops. Petitioners
claims.[8]
vehemently insist that in so employing said
optometrists, private respondent is in effect itself It is significant to note that even under RA.
practicing optometry. Such practice, petitioners No. 8050, known as the Revised Optometry
conclude, is in violation of RA. No. 1998, which, Law,[9] we find no prohibition against the hiring by
it must be noted at this juncture, has been corporations of optometrists. The pertinent
repealed and superseded by RA. 8050. provisions of RA. No. 8050, regarding the
practice of optometry, are reproduced below for
Petitioners' contentions are, however, ready reference:
untenable. The fact that private respondent hires
optometrists who practice their profession in the
course of their employment in private
respondent's optical shops, does not translate "THE PRACTICE OF OPTOMETRY
into a practice of optometry by private
respondent itself. Private respondent is a
corporation created and organized for the SEC. 4. Acts Constituting the practice of Optometry.
purpose of conducting the business of selling Any of the following acts constitute the practice of
optical lenses or eyeglasses, among others. The optometry:
clientele of private respondent understably,
would largely be composed of persons with
a) The examination of the human eye through the
defective vision and thus need the proper lenses
employment of subjective and objective procedures,
to correct the same and enable them to gain
including the use of specific topical diagnostic
normal vision. The determination of the proper
pharmaceutical agents or drugs and instruments,
lenses to sell to private respondent's clientele
tools, equipment, implements, visual aids,
entails the employment of optometrists who have
apparatuses, machines, ocular exercises and related
been precisely trained for that purpose. Private
devices, for the purpose of determining the condition
respondent's business is not the determination
and acuity of human vision to correct and improve
itself of the proper lenses needed by persons
the same in accordance with subsections (b), (c) and
with defective vision. Private respondent's
(d) hereof; vision to correct and improve the same in
business, rather, is the buying and importing of
accordance with subsections (b), (c) and (d) hereof;
eyeglasses and lenses and other similar or allied
instruments from suppliers thereof and selling
b) The prescription and dispensing of ophthalmic
the same to consumers.
lenses, prisms, contact lenses and their accessories
For petitioners' argument to hold water, and solutions, frames and their accessories, and
there need be clear showing that RA. No. 1998 supplies for the purpose of correcting and treating
prohibits a corporation from hiring optometrists, defects, deficiencies and abnormalities of vision.
for only then would it be undeniably evident that
c) The conduct of ocular exercises and vision
training, the provision of orthoptics and other
devices and procedures to aid and correct
abnormalities of human vision, and the installation
of prosthetic devices;
d) The counseling of patients with regard to vision
and eye care and hygiene;
e) The establishment of offices, clinics, and similar
places where optometric services are offered; and
f) The collection of professional fees for the
performance of any of the acts mentioned in
paragraphs (a), (b), (c) and (d) of this section.
All told, there is no law that prohibits the
hiring by corporations of optometrists or
considers the hiring by corporations of
optometrists as a practice by the corporation
itself of the profession of optometry.
WHEREFORE, the instant petition is
hereby DISMISSED.
Costs against the petitioners.
SO ORDERED.

SEC. 5. Prohibition Against the Unauthorized

Practice of Optometry. - No person shall practice
optometry as defined in Section 3 of this Act nor
perform any of the acts, constituting the practice of
optometry as setforth in Section 4 hereof, without
having been first admitted to the practice of this
profession under the provisions of this Act and its
implementing rules and regulations: Provided, That
this prohibition shall not apply to regularly licensed
and duly registered physicians who have received
post-graduate training in the diagnosis and treatment
of eye diseases: Provided, however, That the
examination of the human eye by duly registered
physicians in connection with the physical
examination of patients shall not be considered as
practice of optometry: Provided, further, That public
health workers trained and involved in the
government's blindness prevention program may
conduct only visual acuity test and visual screening.

SEC. 6 Disclosure of Authority to Practice. An

optometrist shall be required to indicate his
professional license number and the date of its
expiration in the documents he issues or signs in
connection with the practice of his profession. He
shall also display his certificate of registration in a
conspicuous area of his clinic or office."
 SECOND DIVISION
[G.R. No. 148384. April 17, 2002]
DOCTORS ROSA P. ALFAFARA, VIVIAN
DYHONGPO, MARIA TORRES,
EMMA YBAEZ, ELSA CABARDO,
REBECCA SANTIAGO, PRISCILLA
NARVASA, SUSIE CHAN, CLARO
CINCO, FELIPE CINCO, CARMEN
MODESTO, FELISA LIMKIMSO,
ARLENE DORIO, ROSALINDA
BONO, and SUSAN YU, in their own
behalf and in behalf of all the other 80
optometrists-members of the
SAMAHAN NG OPTOMETRISTS SA
PILIPINAS-CEBU
CHAPTER, petitioners, vs. ACEBEDO
OPTICAL, CO., INC., respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the
decision,[1] dated January 20, 2000, of the Court of
Appeals, setting aside the decision,[2] dated September
3, 1993, of the Regional Trial Court, Branch 9, Cebu
City, which enjoined respondent Acebedo Optical
Co., Inc., its agents, representatives, and/or
employees from practicing optometry, as defined in
1(a) of Republic Act No. 1998, in the province and
cities of Cebu, and the resolution, dated May 10,
2001, of the appeals court denying petitioners motion
for reconsideration.
Petitioners are optometrists. They brought, in
their own behalf and in behalf of 80 other
optometrists, who are members of the Samahan ng
Optometrists sa Pilipinas-Cebu Chapter, an injunctive
suit in the Regional Trial Court, Branch 9, Cebu City
to enjoin respondent Acebedo Optical Co., Inc. and its
agents, representatives, and/or employees from
practicing optometry in the province of Cebu. In their
complaint, they alleged that respondent opened
several optical shops in Cebu and announced to the
public, through leaflets, newspapers, and other forms
of advertisement, the availability of ready-to-wear
eyeglasses for sale at P60.00 each and free services by
optometrists in such outlets. They claimed that,
through the licensed optometrists under its employ,
respondent had been engaging in the practice of
optometry by examining the human eye, analyzing the
ocular functions, prescribing ophthalmic lenses,
prisms, and contact lenses; and conducting ocular
exercises, visual trainings, orthoptics, prosthetics, and
other preventive or corrective measures for the aid,
correction, or relief of the human eye. They
contended that such acts of respondent were done in
violation of the Optometry Law (R.A. No.
1998)[3] and the Code of Ethics for Optometrists,
promulgated by the Board of Examiners in Optometry
on July 11, 1983. They sought payment to them of
attorneys fees, litigation expenses, and the costs of the
suit.[4]
The trial court at first dismissed the suit but, on
motion of petitioners, reinstated the action and
granted their prayer for a writ of preliminary
injunction and/or restraining order. Petitioners argued
that the case involved a pure question of
law, i.e., whether or not respondents hiring of
optometrists was violative of the applicable laws, and
that, as such, the case was an exception to the rule
requiring exhaustion of administrative remedies as a
condition for the filing of an injunctive suit. They
further alleged that the Board of Optometry held itself
to be without jurisdiction over the president of
respondent Acebedo Company as he was not duly
registered with the Professional Regulation
Commission.
In its answer, respondent averred that the
advertisements referred to by petitioner were part of
its promotion to make known to the public the
opening of its new branches in Cebu; that incidental
to its business of selling optical products, it hired duly
licensed optometrists who conducted eye
examination, prescribed ophthalmic lenses, and
rendered other services; that it exercised neither
control nor supervision over the optometrists under its
employ; and that the hired optometrists exercised
neither control nor supervision in the sale of optical
products and accessories by respondent. By way of
special and affirmative defense, respondent stated that
the optometrists should be impleaded as party-
defendants because they were indispensable parties;
that the trial court had no jurisdiction over the case;
that the filing of the complaint was barred by res
judicata as similar suits had been previously
dismissed by the Court of First instance of Lucena
City and the Securities and Exchange Commission;
and that the petitioners were guilty of forum-
shopping. Respondent sought the recovery
of P100,000.00 as moral damages, P500,000.00 as
exemplary damages, and P100,000.00 as attorneys
fees.[5]
During the pre-trial conference, the parties
entered into the following stipulation of facts: that the
petitioners were duly licensed optometrists; that the
petitioners were all members of the Samahan ng
Optometrists ng Pilipinas (SOP)-Cebu Chapter; that
SOP-Cebu Chapter was a chapter of SOP
Incorporated, a national organization; that the SOP-
Cebu Chapter had a program called Sight Saving
Month; that the Sight Saving Month program was also
a program of the SOP nationwide; that petitioners
SOP Sight Saving Month program provided free
consultations; that respondent was a corporation with
several outlets in Cebu; that respondent was selling
optical products and ready-to-wear eyeglasses of
limited grades; that during the opening of its new
branches in Cebu, the respondent advertised its
products through leaflets, newspapers, and other
similar means, such as streamers and loudspeakers on
board a vehicle; that respondent hired optometrists
who conducted eye examinations, prescribed
ophthalmic lenses, and rendered other optometry
services; and that while the hired optometrists
received their salary from respondent, they are not
precluded from seeking other sources of income.[6]
The evidence for the petitioners showed that
respondent advertised its ready-to-wear eyeglasses in
newspapers, posters pasted on the walls, and
announcements made in roving jeeps. A witness
testified that he purchased a pair of eyeglasses for
P66.00 (P60.00 plus P6.00 for VAT) without any
prior eye examination by an optometrist. A week
later, he had vision difficulty and consulted an
optometrist who advised him to buy a pair of
eyeglasses with the correct grade. Petitioners thus
sought to prove that the selling of ready-to-wear
eyeglasses by respondent was detrimental to the
public.
On the other hand, respondent maintained that
before the customers purchased the ready-to-wear
eyeglasses on display, they either have a prior
prescription from an optometrist or had to be
examined first by the branch optometrist. Customers
thus had the option either to buy the ready-to-wear
eyeglasses on display or to order a new pair of
eyeglasses.
After hearing, judgment was rendered in favor
of petitioners. The trial court found that the hiring of
licensed optometrists by the respondent was unlawful
because it resulted in the practice of the optometry
profession by respondent, a juridical person. It ruled
that respondent could not raise the issue of res
judicata as there was no decision on the merits of the
case rendered by any court of competent jurisdiction
and, consequently, petitioners could not be guilty of
forum-shopping. As to petitioners failure to implead
the optometrists in the employ of respondent, the trial
court explained that since the issue involved the
propriety of respondents hiring of optometrists to
perform optometry services, the optometrists did not
have to be impleaded as defendants. As to whether
respondents selling of ready-to-wear eyeglasses to
customers without prior eye examination violated the
applicable laws and was detrimental to the public, the
trial court ruled that petitioners failed to substantiate
such claim.
Respondent appealed to the Court of Appeals
contending that the trial court erred in holding that
respondent was illegally engaged in the practice of
Optometry; that being indispensable parties, the
licensed optometrists employed by respondent should
have been impleaded as defendants; and that the trial
court erred in not holding that petitioners, by filing
several harassment suits before various fora, were
guilty of forum-shopping.
The Court of Appeals reversed the decision of
the trial court and dismissed the complaint of
petitioners. Citing the case of Samahan ng
Optometrists sa Pilipinas, Ilocos Sur-Abra Chapter v.
Acebedo International Corporation,[7] the appeals
court ruled that respondents hiring of licensed
optometrists did not constitute practice of optometry
nor violate any law. As to the second issue raised, the
Court of Appeals stated that since the complaint was
lodged solely against respondent for its hiring of
optometrists, whatever decision the trial court would
render would solely affect respondent since what was
sought to be restrained was the employment of
licensed optometrists; hence, the optometrists were
not indispensable parties. Anent the issue of forum-
shopping, the appeals court found no cogent reason to
reverse the findings of the trial court that the
administrative case before the Professional
Regulation Commission was not decided on the
merits while the letters of petitioners sent to
government officials did not constitute judicial
proceedings.
Petitioners filed a motion for reconsideration
but their motion was denied. Hence, this petition
alleging that the Court of Appeals erred in holding
that respondent Acebedo was not engaged in the
practice of optometry.
The petition has no merit.
First. Petitioners contend that the ruling
in Samahan ng Optometrists sa Pilipinas, Ilocos Sur-
Abra Chapter v. Acebedo International
Corporation[8] is no longer controlling because of the
later case of Apacionado v. Professional Regulation
Commission.[9] In Apacionado, petitioners Ma.
Cristina Apacionado and Zenaida Robil, who were
employed by Acebedo as optometrists, were
suspended from the practice of optometry for two (2)
years by the Board of Optometry for violation of R.A.
No. 1998 and Art. III, 6 of the Code of Ethics for
Optometrists for having participated in the
promotional advertisement of Acebedo,
entitled Libreng Konsulta sa Mata: Reading Glasses
P60.00, held from July 5-14, 1989 in Tuguegarao,
Cagayan. In affirming the suspension of the
optometrists, the Professional Regulation
Commission found that by rendering professional
services to Acebedos clientele (free eye consultations
and refractions), petitioners were guilty of
unprofessional conduct. Consequently, their
professional licenses as optometrists were suspended
for two (2) years. This was because the services of the
two optometrists were the ones being offered to the
public for free. The decision of the Professional
Regulation Commission was affirmed by the Court of
Appeals and later by this Court. As our resolution,
dated July 12, 1999,[10] stated in pertinent parts:
Thus, the instant petition which must likewise fail.
The Court finds the decision of the Court of Appeals
to be in accordance with the law. The Rules and
Regulation[s] of the Board of Examiners for
[O]ptometry are quite explicit, and Rule 56 provides:
Rule 56. Acts Constituting Unprofessional Conduct.-
It shall be considered unprofessional for any
registered optometrist:
(1) To make optometric
examinations outside of his
regular clinic, unless he shall
have received an unsolicited
written request by the person
or persons to be examined;
 (2) To advertise a price or prices
[of] spectacle frames,
mountings, or ophthalmic
lenses and other ophthalmic
devices used in the practice
of Optometry and to be
associated with, or remain in
the employ of, any person
who does such advertising;
. The contention has no merit. An optometrist is
(4) To advertise free examination,
examination included,
discounts, installments,
wholesale and retail, or
similar words and phrases
which would tend to remove
the spirit of professionalism;
. to be engaged in the practice of optometry. The
(11) To use Mobile Units for
conducting refraction in any
area within ten (10)
kilometers of a Municipality.
Likewise, Section 6 of the Code of Ethics for
optometrists states:
SEC. 6. The following are deemed, among others, to
be unethical and are deemed to constitute
unprofessional conduct:
. operate a branch in Candon, Ilocos Sur. They brought
c. Performing optometric
examination outside of the regular
office, unless he shall have
received unsolicited request to
make such an examination.
. The logical result would be that corporations and
u. To use Mobile Units for
conducting refraction in any area
within ten (10) kilometers of a
Municipality.
These provisions petitioners, through Acebedo, were
found to have violated.
Petitioners cannot deny that it was their skills as
optometrists as well as their licenses which Acebedo
used in order to enable itself to render optometric
services to its clientele. Under such arrangement,
petitioners acted as tools of Acebedo so that the
latter can offer the whole package of services to its
clientele.
Corollarily, Republic Act No. 1998 pertinently
provides:
SEC. 20. Revocation or suspension of certificate. -
The Board may, after giving proper notice and
hearing to the party concerned, revoke or suspend a
certificate of registration for the causes mentioned in
the next preceding section, or for unprofessional
conduct.
Having knowingly allowed themselves to be used as
tools in furtherance of [the] unauthorized practice of
optometry, petitioners are clearly liable for unethical
and unprofessional practice of their profession.The
Court, thus finds no error committed by the Court of
Appeals.
WHEREFORE, petition is denied due course.
Petitioners cite the Tennessee Supreme Court
statement in Lens Crafter, Inc. v. Sunquist,[11] stating
that:
business partnerships might practice law, medicine,
dentistry or any other profession by the simple
expedient of employing licensed agents. And, if this
were permitted, professional standards would be
practically destroyed and professions requiring
special training would be commercialized, to the
public detriment.The ethics of any profession is
based upon personal or individual responsibility.
a person who has been certified by the Board of
Optometry and registered with the Professional
Regulation Commission as qualified to practice
optometry in the Philippines.[12] Thus, only natural
persons can engage in the practice of optometry and
not corporations. Respondent, which is not a natural
person, cannot take the licensure examinations for
optometrist and, therefore, it cannot be registered as
an optometrist under R.A. No. 1998. It is noteworthy
that, in Apacionado, the Court did not find Acebedo
optometrists in that case were found guilty of
unprofessional conduct and their licenses were
suspended for two (2) years for having participated, in
their capacities as optometrists, in the implementation
of the promotional advertisement of Acebedo. In
contrast, in the case at bar, respondent is merely
engaged in the business of selling optical products,
not in the practice of optometry, whether directly or
indirectly, through its hired optometrists.
In Samahan ng Optometrists sa Pilipinas,
Ilocos Sur-Abra Chapter v. Acebedo International
Corporation,[13] petitioners opposed respondent
Acebedos application for a municipal permit to
suit to enjoin respondent Acebedo from employing
optometrists as this allegedly constituted an indirect
violation of R.A. No. 1998, which prohibits
corporations from exercising professions reserved
only to natural persons. The committee created by the
Mayor of Candon to pass on Acebedos application
denied the same and ordered the closure of Acebedo
optical shops. Acebedo appealed but its appeal was
dismissed by the trial court on the ground that it was
practicing optometry. On appeal, the Court of
Appeals held that Acebedo was not operating as an
optical clinic nor engaged in the practice of
optometry, although it employed licensed
optometrists. Acebedo simply dispensed optical and
ophthalmic instruments and supplies. It was pointed
out that R.A. No. 1998 does not prohibit corporations
from employing licensed optometrists. What it
prohibits is the practice of optometry by individuals
who do not have a license to practice. The prohibition
is addressed to natural persons who are required to
have a valid certificate of registration as optometrist
and who must be of good moral character. This Court
affirmed the ruling of the appeals court and explained
that even under R.A. No. 8050 (Revised Optometry
Law) there is no prohibition against the hiring by
corporations of optometrists. The fact that Acebedo
hired optometrists who practiced their profession in
the course of their employment in Acebedos optical
shops did not mean that it was itself engaged in the
practice of optometry.
We see no reason to deviate from the ruling that
a duly licensed optometrist is not prohibited from
being employed by respondent and that respondent
cannot be said to be exercising the optometry
profession by reason of such employment.
Second. Petitioners argue that an optometrist,
who is employed by a corporation, such as Acebedo,
is not acting on his own capacity but as an employee
or agent of the corporation. They contend that, as a
mere employee or agent, such optometrist cannot be
held personally liable for his acts done in the course
of his employment as an optometrist under the
following provisions of the Civil Code. Thus,
Art. 1897. The agent who acts as such is not
personally liable to the party with whom he
contracts, unless he expressly binds himself or
exceeds the limits of his authority without giving
such party sufficient notice of his powers.
Art. 1910. The principal must comply with all the
obligations which the agent may have contracted
within the scope of his authority.
As for any obligation wherein the agent has
exceeded his power, the principal is not bound
except when he ratifies it expressly or tacitly.
This contention likewise has no merit. While
the optometrists are employees of respondent, their
practice of optometry is separate and distinct from the
business of respondent of selling optical
products.They are personally liable for acts done in
the course of their practice in the same way that if
respondent is sued in court in connection with its
business of selling optical products, the optometrists
need not be impleaded as party defendants. In that
regard, the Board of Optometry and the Professional
Regulation Commission regulate their practice and
have exclusive original jurisdiction over them.
In the later case of Acebedo Optical Company,
Inc. v. Court of Appeals,[14] petitioner Acebedo was
granted by the City Mayor of Iligan a business permit
subject to certain conditions, to wit:
1. Since it is a corporation, Acebedo cannot put up
an optical clinic but only a commercial store;
2. Acebedo cannot examine and/or prescribe reading
and similar optical glasses for patients, because these
are functions of optical clinics;
3. Acebedo cannot sell reading and similar
eyeglasses without a prescription having first been
made by an independent optometrist (not its
employee) or independent optical clinic. Acebedo
can only sell directly to the public, without need of a
prescription, Ray-Ban and similar eyeglasses;
4. Acebedo cannot advertise optical lenses and
eyeglasses, but can advertise Ray-Ban and similar
glasses and frames;
5. Acebedo is allowed to grind lenses but only upon
the prescription of an independent optometrist.
The Samahang Optometrist sa Pilipinas-Iligan
Chapter sought the cancellation and/or revocation of
Acebedos permit on the ground that it had violated the
conditions for its business permit. After due
investigation, Acebedo was found guilty of violating
the conditions of its permit and, as a consequence, its
permit was cancelled. Acebedo was advised that its
permit would not be renewed. Acebedo filed a
petition for certiorari, prohibition, and mandamus in
the Regional Trial Court, but its petition was
dismissed for non-exhaustion of administrative
remedies. Acebedo then filed a petition for certiorari,
prohibition, and mandamus with the Court of
Appeals. At first, its petition was dismissed. On
appeal, however, the decision of the Court of Appeals
was reversed. This Court held that a business permit
is issued primarily to regulate the conduct of a
business and, therefore, the City Mayor cannot,
through the issuance of such permit, regulate the
practice of a profession, like optometry. This Court
held Acebedo to be entitled to a permit to do business
as an optical shop because, although it had duly
licensed optometrists in its employ, it did not apply
for a license to engage in the practice of optometry as
a corporate body or entity.
WHEREFORE, the petition is DENIED for
lack of showing that the Court of Appeals committed
a reversible error.
SO ORDERED.